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ACCA Applied Knowledge · Management Accounting · Budget preparation

Kora Co budgets sales of 12,000 units. Production process has a normal loss: 10% of units started are lost in production, with output being 90% of input. Finished goods inventory will rise from 1,000 to 1,800 units. How many units must be started in production?

Kora Co must start 14,222 units. Good output needed is sales 12,000 plus inventory increase of 800, giving 12,800 units. Because only 90% of input emerges as good output, input is 12,800 divided by 0.9, which is about 14,222 units.

  1. A13,111
  2. B14,222Correct
  3. C14,000
  4. D12,800

Explanation

Good output required = 12,000 + 1,800 - 1,000 = 12,800 units. Input = 12,800 / 0.9 = 14,222 units. Using 12,800 ignores the loss; 14,000 wrongly adds 10% of ... approximately, not dividing by 0.9.

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