The production budget is 12,500 units. Each unit needs 2 kg of material. Opening material inventory is 3,000 kg and the closing inventory is to be 4,000 kg. How many kg of material must be purchased?
Answer and explanation
Correct answer: B. 26,000 kg
- Step 1: Material usage = 12,500 × 2 kg = 25,000 kg.
- Step 2: Purchases = usage + closing inventory − opening inventory = 25,000 + 4,000 − 3,000.
- Step 3: = 26,000 kg.
Answer
26,000 kg.
Why not the others: 24,000 kg: This subtracts the increase in material inventory instead of adding it. 25,000 kg: This is the usage and ignores the planned increase in inventory. 32,000 kg: This adds both opening and closing inventory to usage.
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