Cambridge International A Level · Accounting (9706)
2 multiple-choice questions marked as you go, and 5 written questions with worked solutions. All on Budgeting and budgetary control.
A manufacturing company expects to sell \( 15,000 \) units of its product next month. The opening inventory is \( 2,000 \) units. The company's policy is to maintain a closing inventory equal to \( 10\% \) of the current month's sales.
How many units should the company produce next month?
A firm provides the following sales forecast for the next three months:
- Month 1: \( 10,000 \) units
- Month 2: \( 12,000 \) units
- Month 3: \( 15,000 \) units
The company policy is to hold a closing inventory of finished goods at the end of each month equal to \( 20\% \) of the following month's sales. The opening inventory for Month 2 is expected to be \( 2,400 \) units. Production experiences a standard wastage rate of \( 5\% \) (meaning only \( 95\% \) of units started result in finished goods).
How many units must be started in production during Month 2 to meet the requirements?
Identify the primary components that typically comprise the master budget of a manufacturing organisation.
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Explain why a flexible budget is considered a more effective tool for performance evaluation than a fixed budget when actual activity levels differ from the original plan.
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A company expects to sell 12,000 units next quarter. The opening inventory is 1,200 units, and the management desires a closing inventory of 1,500 units. Calculate the total number of units to be produced.
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A company is implementing a system of budgetary control for the first time.
a) Define the term 'master budget' and identify the two primary financial statements that typically comprise it.
b) Explain three advantages to an organization of using a system of budgetary control.
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H Ltd manufactures a single product. The sales manager has provided the following sales budget for the next three months:
- October: 4,000 units
- November: 5,200 units
- December: 6,000 units
The company policy is to maintain the closing inventory of finished goods at \(20\%\) of the following month's budgeted sales. The opening inventory for October is expected to be 800 units.
a) Prepare the production budget (in units) for October and November.
b) Briefly explain why a business might choose to maintain a policy for inventory levels rather than producing exactly what is sold each month.
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