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How to calculate the emergency purchase?
- Any procurement of raw materials at the first period will become inventory at the second period, and therefore not available to support production with one exception.
- When the production request/allocation exceeds what the inventory of raw materials can support, the additional raw materials needed to support the request/allocation will be taken from the procurement of raw materials for the next period.
- i.e. the material purchasing quantity, and it is paid for on an “emergency purchase” basis, i.e. at a penalty price of $1.50 more per unit than the market price, so that they are delivered immediately for use in the production according to the production request/allocation.
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