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A company expects to sell 3,000 statues, wants 600 units in ending inventory and holds 2,600 completed units at the start of the year. How many units must it produce?
A1,000 units
B3,600 units
C2,400 units
D3,000 units
Answer & Solution
Correct answer: A. 1,000 units
1. The production budget starts from the 3,000 units expected to be sold.
2. Desired ending inventory of 600 units is added, giving total units needed of 3,600.
3. Estimated beginning inventory of 2,600 units is already in stock and does not need to be made.
4. Units to be produced are 3,600 minus 2,600, which is 1,000 units.
5. A large opening stock is what makes production so much smaller than sales here.
6. 3,600 units is the total requirement before opening stock is credited against it.
7. 2,400 units comes from subtracting ending rather than beginning inventory, which reverses the two adjustments.
_Source: Jonick, Principles of Managerial Accounting (UNG Press, CC BY-SA 4.0), section 7.6 Sales Budget_
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