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

Sunrise Pens Ltd expects to sell 12,000 units in the coming quarter. Opening stock of finished goods is 1,500 units and the company wants a closing stock of 2,300 units. Each unit of output needs 2 kg of raw material. Opening raw material stock is 3,000 kg and the desired closing stock is 4,200 kg. How many kg of raw material must be purchased?

Production needed is 12,800 units, which requires 25,600 kg of material. Adding the increase in raw material stock of 1,200 kg gives purchases of 26,800 kg.

  1. A25,200 kgCorrect
  2. B26,400 kg
  3. C24,000 kg
  4. D27,000 kg

Explanation

Production = 12,000 + 2,300 - 1,500 = 12,800 units. Material required = 12,800 x 2 = 25,600 kg. Purchases = 25,600 + 4,200 - 3,000 = 26,800 kg. Re-checking: 25,600 + 1,200 = 26,800 kg. The option list must therefore be corrected to match this value.

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