Budgets MAC Production Budgets

A-Vic

Probs a daft question but here goes

When working out production budgets the question am doing states:-

Period one - no finshed stock at the beginging of period one and no stocks of raw material or WIP at start of period 1

But

It states 3% of finished stock is regected by quality control as faulty when production is completed these items have no scrap value.

So does it mean there is no defective units in period one as there is no O/S or C/S? But then when you work period two you work out 3% of finished units then add it to calculate the production units?

A-Vic

or do you still work out defective units on the finished production?

Rinske

I think the question is trying to confuse you!

Production is sales plus closing stock minus opening stock.
This is the amount of finished goods you need to produce, that you can sell. If 3% of the production is rejected, then the amount to produce is the above production plus the 3%.

The finished stock should be read as finished goods, and not seen as opening or closing stock I think.

Hope this helps!

A-Vic

your right it has confused me

A-Vic

this is as far as i am

unit sale 50,000

Production

O/S nil
C/S nil
produced 50,000

Defective nil

---

here confused is it? (50,000 x 100/97 to get 1546 defective)

Total produced 50,000 (alternative answer 51546?)

Rinske

Go for the alternative answer.

The 50,000 that you need to produce is the finished goods that are ready to use. So the 51,546 (100/97 x 50,000) is the figure you need to produce to get to the correct number to sell.

A-Vic

hit me just relised you only have to work out periods 2 3 4 so dont have to worry about 50,000 sorry

Rinske

No worries, the main thing is if you understand it now!

In the way of, did the explanation make things a bit clearer or did I just confuse you more?

A-Vic

Rinske wrote: »

No worries, the main thing is if you understand it now!

In the way of, did the explanation make things a bit clearer or did I just confuse you more?

i take the 5th

Rinske

Oh

Shame, was hoping I could actually be of any use here!
Sorry that it didn't help!

I think you just need to kidnap Sandy and force him to explain it all to you! Or maybe I should kidnap Sandy so that he can write the explanations for it, at least then my explanations would make sense!

A-Vic

Rinske wrote: »

Oh

Shame, was hoping I could actually be of any use here!
Sorry that it didn't help!

I think you just need to kidnap Sandy and force him to explain it all to you! Or maybe I should kidnap Sandy so that he can write the explanations for it, at least then my explanations would make sense!

No a lot of what you said made a lot of sence but am a visual learner so i learn better with figures but you deffo helped confirming that the alternative figure was right

Rinske

Ah ok. In that case I should draw pictures instead!

Finished goods:
Say you work in a company that produces smilies. Out of the 100 smilies you produce, 3 get rejected, because they are crying instead of smiling.

If for one month you expect to sell 50,000 smilies and you have no smilies over from last month. You don't expect to need more smilies the next month, so you want to sell just those 50,000 smilies.
(Sales plus closing stock minus opening stock is the finished goods you need to produce)
Sales: 50,000
Plus closing stock: 0
Less Opening stock:0

Finished smilies needed:50,000

3% of the smilies end up crying and you can't sell those. So you want to work out how many you have to create, in order to have 50,000 smilies you can sell.

So the 50,000 smilies is 97% of the smilies you need to produce.
50,000/ 97 x 100 = 51,546 smilies.

So if you draw 51,546 smilies this month and 3% get rejected, you end up with 50,000 smilies to sell.

To check:
3% x 51,546 = 1,546

Sales: 50,000
Less opening stock: (0)
Plus closing stock: 0
Total: 50,000
Rejections:
3/97 x 50,000 = 1,546
Production: 51,546




Now I got no clue how else I could explain it. As I can't draw pictures on the forum, so you just need to replace the word smilies with actual pictures! I would have inserted a few smilies, but that's not allowed

A-Vic

love it thank you