ACCA Applied Knowledge · Management Accounting · Budget preparation
Which statement about the materials purchases budget is correct?
Purchases equal materials usage plus closing inventory minus opening inventory. The business must buy enough to cover production needs and any planned build-up of stock. It is prepared after the production budget, because usage depends on production volume.
- AIt equals materials usage plus opening inventory minus closing inventory
- BIt equals materials usage plus closing inventory minus opening inventoryCorrect
- CIt is the same as the materials usage budget when inventory levels change
- DIt is prepared before the production budget
Explanation
The purchases quantity must cover production usage and any increase in material inventory, so purchases = usage + closing - opening inventory. Reversing the inventory terms understates purchases when inventory builds up. It depends on the production budget, so cannot come first.
Did you get it right without looking?
One question tells you little. A timed set on Budget preparation shows your real accuracy, how long you take and where you lose marks.
More Budget preparation questions
- A department manager is given a budget target that she regards as impossible to achieve, and she has had no involvement in setting it. Which…
- Which approach to setting budgets is most likely to improve manager commitment to the budget but also carries the risk of budgetary slack?
- Kestrel Ltd budgets to produce 12,000 units next period. Each unit needs 3 kg of material costing $4 per kg. Opening inventory of materials …
- Dalmar Co sells product P at a price of $40 per unit. Budgeted sales volume for the year is 50,000 units. Market research suggests that a pr…
- A company's budget for next year is prepared by starting with every activity at zero and requiring each manager to justify all expenditure f…
- A company uses a rolling budget of four quarters, updated each quarter. The original annual budget for quarters 1 to 4 had direct labour of …