Question

A standard cost card includes 3 kg of materials at a cost of £2.50. Sales are budgeted at 20,000 units. The opening inventories are finished goods, 3,000 units; raw materials 10,000 kilograms. The budget anticipates inventories at the end of the year of 2,000 units and 5,000 kg.

The production level of finished goods is:
A.15,000
B.19,000
C.21,000
D.25,000

Answer 1

The production level of finished goods required is 19,000 units. This is calculated by adding the sales of 20,000 units to the desired ending inventory of 2,000 units, and then subtracting the opening inventory of 3,000 units.

Step-by-step explanation:

The student has asked how to calculate the production level of finished goods given a standard cost card that includes material costs and desired inventory levels. To find the production level, we need to account for the units we want to end with (sales plus ending inventory) and subtract the units we are starting with (opening inventory of finished goods).

First, we calculate the number of units needed to satisfy sales and ending inventory: Sales (20,000 units) + Ending Inventory (2,000 units) = 22,000 units required in total. Then, we subtract the opening inventory of finished goods to find out how many units need to be produced: 22,000 units required - 3,000 units opening inventory = 19,000 units to be produced.

This production calculation is crucial to meet the budgeted sales and inventory levels. It also influences the purchasing and handling of raw materials, as the production plan determines how much raw material is needed, considering both starting inventory and the desired ending inventory of raw materials.