CMA Foundation · Fundamentals of Financial and Cost Accounting · Application of Cost Accounting for Business Decisions
In a manufacturing firm, the sales budget shows 8,000 units. Opening finished stock is 1,000 units and the desired closing finished stock is 1,500 units. How many units must the production budget provide for?
The production budget must provide for 8,500 units. Production equals budgeted sales plus desired closing stock minus opening stock, which is 8,000 + 1,500 - 1,000. This ensures 1,500 units remain in stock after selling 8,000 units.
- A7,500 units
- B8,500 unitsCorrect
- C9,500 units
- D8,000 units
Explanation
Production = Sales + Closing stock - Opening stock = 8,000 + 1,500 - 1,000 = 8,500 units. Check: 1,000 opening + 8,500 produced = 9,500 available, less 8,000 sold leaves 1,500. Choosing 7,500 reverses the stock adjustment.
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