Need help with production budget question
Sadz
Registered Posts: 8
Can anyone help explain how the production budget (units) figure was calculated?
The only part I dont get of the answer is how the production budget was calculated with just the sales and closing inventory.
Textbook answer:
The only part I dont get of the answer is how the production budget was calculated with just the sales and closing inventory.
Textbook answer:
0
Comments
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So Sales budget is easy predicted number sold x sale price = 3000 x 40 = £120,000
For the production budget you need to first work out how many units are needed assuming no defects.
Number to sell - Opening Inventory of finished units + Closing Inventory of finished units required
You are told that you have 20% of the units you require 3000*0.2 = 600 there is an unstated assumption that the closing inventory rule was met previously. You need 3400*0.2=680 units ready for the next period. This means you need:
3000 - 600 + 680 = 3080 units of goods for the period. However 3% of finished goods are defective so the 3080 makes up 97% of total goods made.
3080 * 3/97= 96
3080+96 = 3176
I hope this helps for the production budget. If you need the next bit let me know and I'll expand my answer but the general process is the same.AAT Level 4, MAAT
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Thank you for your help, that explains it perfectly. I just didnt consider that the 20% would also apply to the previous period.0
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Yeah the best thing to remember for these questions is that unless stated otherwise all budget assumptions have been met.
I've seen some questions state for instance that there is a certain opening inventory that doesn't match the budget rule.AAT Level 4, MAAT
ACCA in progress
F4- Passed Aug 2020
F5- Passed Dec 2020
F6- Passed Sep 2020
F7- Passed June 2021
F8 - Passed Sep 2021
F9 - Passed June 2021
SBL -
SBR - Passed Mar 22
ATX - Passed Dec 21
APM - Passed June 220
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