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RS Ltd Case Study: Cost Accounting, Production Budget

RS Ltd is currently preparing the production budget for Product A and the material purchase budget for material X for the
forthcoming year. Each unit of Product A requires 5 kgs of material X.

The anticipated opening stock for Product A is 5,000 units and the company wishes to increase the closing stock by 30%
by the end of the year.

The anticipated opening stock for material X is 50,000 kgs and in order to avoid stock-outs the required closing stock has
been increased to 60,000 kgs.

The Sales Director has confirmed a sales requirement of 70,000 units of Product A.

How many units of Product A will need to be produced?
What will be the purchases budget for material X?

Solution Preview

Production budget Units
Required sales 70,000
Required closing stock 6,500
Less: Anticipated opening stock ...