alleryStart learning →Which budget must be completed before the production budget can be prepared?
AThe factory overhead cost budget
BThe direct labor cost budget
CThe sales budget for the year
DThe cash budget for the year
Answer & Solution
Correct answer: C. The sales budget for the year
1. The sales budget is prepared first, by estimating the number of units that will be sold.
2. The production budget begins with that estimated number of units to be sold.
3. Desired ending inventory is added and beginning inventory is deducted to get units to produce.
4. The labor and overhead budgets come later in the chain, so neither can precede production.
_Source: Jonick, Principles of Managerial Accounting (UNG Press, CC BY-SA 4.0), section 7.6 Sales Budget_
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