CMA Intermediate · Management Accounting · Forecasting, Budgeting and Budgetary Control
Sharma Textiles Ltd budgets sales of 12,000 units. Opening finished stock is 1,500 units and the desired closing finished stock is 2,100 units. How many units must the production budget provide for?
Production must be 12,600 units. The firm needs to meet sales of 12,000 units and also build finished stock from 1,500 to 2,100 units, an increase of 600 units, so production equals sales plus the net stock increase.
- A11,400 units
- B12,600 unitsCorrect
- C13,500 units
- D15,600 units
Explanation
Production = Sales + Closing stock - Opening stock = 12,000 + 2,100 - 1,500 = 12,600 units. Option 11,400 reverses the stock adjustment, subtracting the increase in stock instead of adding it.
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