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CIMA P1 Budgeting Objectives, The preparation of budgets
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Absolutely love what you are doing.
I have a question regarding the Exercise 2.
It says that we have closing inventories of FG & RM.
Doesn’t that mean we have those as our inventory? Therefore when we are preparing the Production budget shouldn’t we reduce our production from the full amount of closing FG inventory as we already have them?
Closing FG inventory –
X – 600u
Y – 1000u
Z – 800u
– Production Budget
X : 2000u – 600u = 1400u
Y : 4000u – 1000u =3000u
Z : 3000u – 800u = 2200u ?
it doesn`t work like that .the top-level management has decided to increase inventories so the formula for cost of goods is opening inventories +purchases-closing inventories. since they want to increase inventories for that reason they did that calculation like that.
Absolutely love it. Thank you.