Skip to content

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

Sundaram Foods Pvt. Ltd. expects to sell 12,000 units in April and 15,000 units in May. Its policy is to hold closing finished stock equal to 20% of the next month's sales. Opening stock on 1 April is 2,000 units. How many units should be produced in April?

Production for April should be 13,000 units. Closing stock must be 20% of May sales, which is 3,000 units. Production equals sales of 12,000 plus closing stock of 3,000 less opening stock of 2,000, giving 13,000 units.

  1. A12,400 unitsCorrect
  2. B13,000 units
  3. C11,600 units
  4. D14,400 units

Explanation

Closing stock of April = 20% of May sales = 20% x 15,000 = 3,000 units. Production = Sales + Closing stock - Opening stock = 12,000 + 3,000 - 2,000 = 13,000 units. Check: opening 2,000 + production 13,000 - sales 12,000 = 3,000 closing, which matches. So the correct figure is 13,000 units, not 12,400.

Did you get it right without looking?

One question tells you little. A timed set on Budgets and Budgetary Control shows your real accuracy, how long you take and where you lose marks.

Practise Budgets and Budgetary ControlFree diagnostic mock

More Budgets and Budgetary Control questions