Final answer:
The direct materials budget must be completed before the production budget; this is a true statement because a company needs to understand its variable and fixed costs to plan production effectively, and this is dictated by the quantity and cost of materials.
"The correct option is approximately option A"
Step-by-step explanation:
The statement that "The direct materials budget must be completed before the production budget because the quantity of materials available for production must be known" is True. Understanding business and economics starts with grasping the concepts of scarcity and tradeoffs, which are central to these fields. In evaluating the order of budget preparations, it's necessary to recognize that a firm's total costs are determined by its inputs and the costs associated with them. The production function is the key determinant of the quantity of inputs needed to produce a given output.
Before any production can occur, the firm needs to understand its fixed and variable costs.
Fixed costs are incurred regardless of output, while variable costs fluctuate with production levels, often showing diminishing marginal returns. Therefore, the direct materials budget lays the foundation for the production budget as it provides the essential information on the quantity and cost of materials required for production. Only with this detailed information on hand, can a company proceed to effectively plan its production activities and associated costs.