Final answer:
The impact of the production number on the cash budget involves an increase in both total costs and variable costs as production rises, due to the principle of diminishing marginal productivity. Accurately projecting these costs is vital for creating a realistic cash budget that reflects the financial needs at differing production levels.
Step-by-step explanation:
The question relates to understanding how the production number impacts the cash budget within a business context. As production levels increase, the number of units produced rises, which in turn affects the company's costs; more units require more inputs, which naturally incur higher expenses. It's important to note that costs are comprised of both fixed costs and variable costs; the former stays constant regardless of production levels, while the latter vary depending on the volume of production.
This increment can be attributed to the principle of diminishing marginal productivity, where initial increases in production may enjoy a decreasing rate of cost per unit; however, beyond a certain point, additional units produced may incur higher variable cost rates due to the additional resources and inefficiencies arising from higher production volumes.