ACCA Applied Knowledge · Management Accounting · Budget preparation
Zeta Co expects to sell 8,000 units next month. Opening inventory of finished goods is 1,500 units and the company wants closing inventory of 2,000 units. What is the production budget in units?
The production budget is 8,500 units. Production equals budgeted sales plus the desired closing inventory less opening inventory, so 8,000 plus 2,000 minus 1,500. Inventory is being built up by 500 units, so production must exceed sales by that amount.
- A7,500
- B8,000
- C8,500Correct
- D9,500
Explanation
Production = sales + closing inventory - opening inventory = 8,000 + 2,000 - 1,500 = 8,500 units. Choosing 7,500 reverses the inventory adjustment, subtracting the increase instead of adding it.
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