Question 2 (b)
Quarterly and annual production budget with stock levels
14 marks
- Time to write
- About 28 minutes
- Topic
- Functional budgets
Question
Question 2 (b) · 14 marksKV Limited makes and sells a single product. Its sales budget for the calendar year 2025, quarter by quarter, is as follows:
| Quarters | I | II | III | IV |
|---|---|---|---|---|
| No. of units to be sold | 19,000 | 23,000 | 26,000 | 28,000 |
The year is expected to begin with 5,000 units of finished products in inventory and to end with 7,000 units in inventory. As a rule, production is scheduled to provide for 70% of the sales demand of the current quarter plus 30% of the demand of the following quarter.
Prepare a statement, quarter-wise as well as for the whole year, showing the opening stock, production and closing stock of the product.
Reworded from the university paper: names and figures differ, the task is the same. The original paper belongs to the University of Delhi. See DU's question bank.
Before you write
Read off the question and its marks
Read from the question
- Prepare a statementDraw the format first (heading, columns, dates), then fill in the figures from your working.
Write it in this order
- Read the data; tick every adjustment as you plan it 2 min
- 1 Production for quarters I to III by the 70%/30% rule 5 marks 9 min
- 2 Fourth-quarter production to the budgeted closing stock 3 marks 5 min
- 3 Quarterly and annual statement of stock and production 6 marks 10 min
- Check: every adjustment used, both sides agree, dates in 2 min
Try it first. About 28 minutes for 14 marks. Write it out, then open the solution.
Solution
Hover or tap a marked figure, like 72,000, to see how it is made and where else it appears.
Working: production for each quarter
Production is scheduled at 70% of the current quarter's sales plus 30% of the next quarter's sales.
| Quarter | 70% of current quarter (units) | 30% of next quarter (units) | Production (units) |
|---|---|---|---|
| I | 70% of 19,000 = 13,300 | 30% of 23,000 = 6,900 | 20,200 |
| II | 70% of 23,000 = 16,100 | 30% of 26,000 = 7,800 | 23,900 |
| III | 70% of 26,000 = 18,200 | 30% of 28,000 = 8,400 | 26,600 |
| IV | See the note below | — | 27,300 |
Statement of opening stock, production and closing stock (units), year 2025
| Particulars | Quarter I | Quarter II | Quarter III | Quarter IV | Whole year |
|---|---|---|---|---|---|
| Opening stock | 5,000 | 6,200 | 7,100 | 7,700 | 5,000 |
| Add: Production | 20,200 | 23,900 | 26,600 | 27,300 | 98,000 |
| Units available | 25,200 | 30,100 | 33,700 | 35,000 | 1,03,000 |
| Less: Sales | 19,000 | 23,000 | 26,000 | 28,000 | 96,000 |
| Closing stock | 6,200 | 7,100 | 7,700 | 7,000 | 7,000 |
The closing stock of each quarter is the opening stock of the next.
The 70%/30% rule would need the first-quarter sales of the following year, which are not given. The fourth quarter's production is therefore the figure that brings the year-end inventory to the budgeted 7,000 units:
Production in Quarter IV = Sales 28,000 + Closing stock 7,000 − Opening stock 7,700 = 27,300 units. It is below the quarter's sales, so stock is run down by 700 units in the last quarter to reach the year-end level.
Check for the year: Opening stock 5,000 + Production 98,000 − Sales 96,000 = Closing stock 7,000 units.
Where the 14 marks sit
| # | Component | Marks |
|---|---|---|
| 1 | Production for quarters I to III by the 70%/30% rule | 5 |
| 2 | Fourth-quarter production to the budgeted closing stock | 3 |
| 3 | Quarterly and annual statement of stock and production | 6 |
| Total | 14 |
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