Answer
General guidance
Production budget: It refers to the number of units produced and it usually derived by forecasting sales and the amount of finished goods on hand as safety stock if by any cause demand fluctuates.
Budget: A budget is a financial plan made by the company for a definite period such as for months or years. This is generally expressed in the monetary terms. Budget is generally prepared for making the crucial decisions about the future.
Sales: Sale of any goods or services can be made ona cash or credit basis. The amount receivable on sale can either be received immediately in cash or such a payment can be received at some future date. In case of sale is being made on a credit basis the company maintains an account of such customer in its books as Debtor or Accounts Receivable.
Inventory: It is goods of the company which can be in forms of raw material, work in progress and finished goods. The company held these goods for sale in the ordinary course of business it shows the capability of the company to manufactured goods in what quantity it is showed in the asset side of the balance sheet.
Sales budget: It can be referred to as the budget prepared by the business entity in which estimation of Sales in units and the estimated earnings from the same is made. It is very important for the business entities to prepare the sales budget, as they can compare their actual performance with the budgeted performance and can track their chances of improvement.
Ending inventory: it refers to the amount of goods stored that a business has left at the end of the accounting period. The account of closing stock is credited because these are the goods that remain unsold and the amount is to be calculated at the end of the fiscal or accounting year.
Opening inventory: It is the value of the inventory which is there with the firm at the start of the accounting period; it is also the ending inventory of the previous period.
Step-by-step
Step 1 of 2
The required production cannot be ascertained by adding budgeted sales with beginning and desired closing inventory because beginning inventory is subtracted in order to ascertain required production. Thus, this option is incorrect.
The required production cannot be ascertained by deducting desired ending inventory as it is a part of required production. Thus, this option is incorrect.
The required production cannot be ascertained by adding beginning inventory as beginning inventory is a part of the previous year’s required production. Thus, this option is incorrect.
The required production cannot be ascertained by adding budgeted sales with beginning and desired closing inventory. Beginning inventory is the part of previous year’s production; therefore it can’t be added while computing required production.
The desired ending inventory is part of the required production. To compute required production it is required to add budgeted sales and ending inventory. Hence, ending inventory would not be deducted.
Step 2 of 2
The required production can be computed by subtracting budgeted sales from beginning inventory and the result is added with desired ending inventory the production depends on the sales forecast.
The required production can be computed by subtracting beginning inventory from budgeted sales and adding desired ending inventory.
The production budget tells the business to produce units that will meet the sales and ending inventory. The company holds inventory at hand to meet the requirements of sudden demand. Opening inventory would be part of the previous year’s production. Hence, it is subtracted from the budget sales.
Therefore, the required production equals to budgeted sales subtracted from opening inventory and the result will be added with the desired ending inventory.
Answer
The required production can be computed by subtracting beginning inventory from budgeted sales and adding desired ending inventory.
Answer only
The required production can be computed by subtracting beginning inventory from budgeted sales and adding desired ending inventory.