Page 156 - P1 Integrated Workbook STUDENT 2018

Chapter 9

Example 2

ABC has determined that their production budget for product X next year will
be 10,500 units. Every unit of product X uses 2 kg of material Y. ABC currently
has 200 kg of material Y in inventory and would like to see this fall to 150 kg
by the end of the year. Material Y is expected to cost $4 per kg.

Calculate the budgeted material usage, material purchases for Y and the
total material cost for Y.

Solution

Material usage = production budget × standard material usage per unit

Material usage = 10,500 units × 2 kg = 21,000 kg

Material purchases = materials usage + closing inventory – opening inventory

Material purchases = 21,000 kg + 150 kg – 200 kg = 20,500 kg

Material cost = material purchases × cost per kg

Materials cost = 20,500 kg × $4/kg = $82,000

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