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CA Intermediate · Cost and Management Accounting · Budgets and Budgetary Control

Sharma Textiles Ltd expects to sell 12,000 units in the next quarter. Opening finished goods stock is 1,500 units and the desired closing stock is 2,500 units. Each unit of finished goods needs 3 kg of raw material. Opening raw material stock is 4,000 kg and desired closing raw material stock is 5,000 kg. How many kilograms of raw material must be purchased?

Purchases required are 40,000 kg. Production is 13,000 units (sales 12,000 plus 1,000 increase in stock), needing 39,000 kg of material, and adding the 1,000 kg increase in raw material stock gives 40,000 kg to be purchased.

  1. A37,000 kg
  2. B39,000 kg
  3. C40,000 kgCorrect
  4. D41,000 kg

Explanation

Production = 12,000 + 2,500 - 1,500 = 13,000 units. Material needed for production = 13,000 x 3 = 39,000 kg. Purchases = 39,000 + 5,000 - 4,000 = 40,000 kg. Ignoring the change in finished goods stock gives 12,000 x 3 + 1,000 = 37,000 kg, which is wrong.

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