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CMA Intermediate · Management Accounting · Forecasting, Budgeting and Budgetary Control

Verma Industries budgets production of 8,000 units, each needing 3 kg of raw material. Opening raw material stock is 4,000 kg and the desired closing stock is 6,000 kg. Material costs ₹50 per kg. What is the budgeted purchase cost of raw material?

The budgeted purchase cost is ₹13,00,000. Usage is 24,000 kg, and adding the closing stock of 6,000 kg and deducting the opening stock of 4,000 kg gives purchases of 26,000 kg, which at ₹50 per kg costs ₹13,00,000.

  1. A₹11,00,000
  2. B₹12,00,000
  3. C₹13,00,000Correct
  4. D₹12,50,000

Explanation

Material needed = 8,000 x 3 = 24,000 kg. Purchases = 24,000 + 6,000 - 4,000 = 26,000 kg. Cost = 26,000 x 50 = ₹13,00,000. Option ₹11,00,000 reverses the stock adjustment (22,000 kg), and ₹12,00,000 ignores stock changes.

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