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CA Intermediate · Cost and Management Accounting · Budgets and Budgetary Control

Kaveri Ltd budgets sales of 12,000 units in a year. Opening stock of finished goods is 1,500 units and the desired closing stock is 2,100 units. Normal wastage in production is 5% of units put into production (i.e. good output is 95% of input). How many units must be put into production to meet the plan?

Kaveri Ltd must put about 13,263 units into production. Good output needed is 12,000 plus 2,100 closing stock less 1,500 opening stock, which is 12,600 units. Because only 95% of input is good output, input equals 12,600 divided by 0.95, about 13,263 units.

  1. A12,600 units
  2. B12,000 units
  3. C13,263 unitsCorrect
  4. D13,125 units

Explanation

Good output required = 12,000 + 2,100 - 1,500 = 12,600 units. Since good output is 95% of input, input = 12,600 / 0.95 = 13,263.16, about 13,263 units. Option 13,125 wrongly adds 5% of 12,600... actually 12,600 x 1.05 = 13,230, and 13,125 results from other base errors; the 12,600 option ignores wastage.

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