ACCA Applied Knowledge · Management Accounting · Nature and purpose of budgeting
A company plans to sell 12,000 units next period. Opening finished goods inventory is 1,500 units and the company wants closing inventory of 2,400 units. Production wastage is nil. What is the production budget in units?
The production budget is 12,900 units. Production equals sales of 12,000 plus the planned closing inventory of 2,400 less the opening inventory of 1,500, because the inventory build-up must be produced in addition to the units sold.
- A12,900Correct
- B11,100
- C13,500
- D10,500
Explanation
Production = sales + closing inventory - opening inventory = 12,000 + 2,400 - 1,500 = 12,900. Option 11,100 subtracts the inventory increase instead of adding it (wrong sign). Option 13,500 adds the opening inventory instead of subtracting it.
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