If there is a sole supplier for the raw material Z in the market and the supplier do not sale more than 4,000 kg. of material Z at a time. Keeping…

CA Intermediate · Cost and Management Accounting · MTP · May 2024
If there is a sole supplier for the raw material Z in the market and the supplier do not sale more than 4,000 kg. of material Z at a time. Keeping the management purchase policy and production quantity mix into consideration, calculate the maximum number of units of Product X and Y that could be produced.

Suggested Answer and Working Notes:

Since, the maximum number of orders per year cannot be more than 40 orders and the maximum quantity per order that can be purchased is 4,000 kg. Hence, the total quantity of Material Z that can be available for production: = 4,000 kg. × 40 orders = 1,60,000 kg. Product X Product Y Material needed for production to maintain the same production mix 1,03,929 kg. (1,60,000 × 1,63,889 / 2,52,310) 56,071 kg. (1,60,000 × 88,421 / 2,52,310) Less: Process wastage 10,393 kg. 2,804 kg. Net Material available for production 93,536 kg. 53,267 kg. Units to be produced 18,707 units (93,536 kg. / 5kg.) 8,878 units (53,267 kg. / 6kg.)

Topics: Unit & Batch Costing, Budgets and Budgetary Control

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