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November 17, 2020 at 2:35 pm
Is the principal budget factor the same as the bottleneck resource?
Thank you Sir. 🙂
John Moffat says
November 17, 2020 at 3:09 pm
No. I understand why you see a similarity, but the most common principal budget factor is the level of demand, whereas the bottleneck resource is what limits what we are capable of producing.
November 17, 2020 at 7:53 pm
Thank you very much Sir. 🙂
November 18, 2020 at 8:31 am
You are welcome 🙂
November 4, 2020 at 2:09 am
Thank you so much for this example.
Would you be so kind and explain to me for this scenario how to do the Budgeted Profit Statement, please?
May 18, 2020 at 1:00 pm
Thank you for this lecture and clarifications
May 18, 2020 at 4:32 pm
Thank you for your comment 🙂
April 13, 2020 at 7:45 pm
Could you please explain once again the concept of adding the inventories? I am not getting it.
April 14, 2020 at 7:11 am
If there were no inventories then they would obviously produce the same number of units as they sell.
If however the also want to increase their inventory over the year then they need to not only produce what they are going to sell but they also need to produce whatever they need to increase the inventory.
April 14, 2020 at 8:26 am
thank you sir……….
April 14, 2020 at 12:48 pm
February 17, 2020 at 10:02 am
when we are making production budget, why don’t you subtract the opening inventory from sales budget?
because we already have some in opening inventory which means we are gonna have to produce less number of units?
please clear this for me, Thank you.
February 17, 2020 at 10:10 am
oh I got it. Sorry. it was a stupid question :p
February 17, 2020 at 1:37 pm
No problem – I am pleased you have now got it 🙂
November 9, 2019 at 10:01 am
What kind of questions should we expect from the budgeting chapter in PM exam. It would be helpful if you could elaborate on each section (A, B and C)?
August 29, 2019 at 1:51 pm
will they be asking us to do cash budgets or capital expenditure budgets in the PM paper?
August 29, 2019 at 3:57 pm
No – they are in Paper FM not PM.
May 23, 2019 at 11:54 am
I didn’t quite understand the logic why we added the inventory movements to our budgeting figure during question (b)? What if it was the case that the opening balance of X is 500 units and closing balance of X is 300 units. In other words, what would happen if the we had a negative movement of 200 units?
In these cases I always think in a way to maintain a low level of inventories, and thus I first though in a way that I would sell what I have available on hand (in the inventories), then I would produce the rest, which in this case the production budget for X would be 1,400 units since we already have 600 units of X on hand at the time being as closing balance. Is this a wrong approach Sir?
Thanks a lot in advance for the clarification.
May 23, 2019 at 4:31 pm
Several problems 🙂
They start the year with 500 units in inventory. They are selling 2,000 units and so they will use the 500 units they already have, which means they will need to produce the other 1,500 units. However, this would leave them with zero inventory at the end of the year. But the question says that they wish to end up with 600 units at the end of the year. Therefore in addition to the 1,500 units they are already producing they also need to produce another 2,100 units so as to end up with the required inventory.
Remember from Paper FA (was F3), or whatever exempted you from that exam, that the goods sold = opening inventory + production – closing inventory.
May 24, 2019 at 12:10 pm
Thank you very much for the clarification, I actually did not understand from the inventory schedule that the question was instructing us to bring ending inventory balance to 600 units for product X. I understood that as of today we have 600 units on hand.. 🙂 common mistake of approaching the question on an auditor’s perspective 🙂
Everything is clear now. Thank you very much.
May 24, 2019 at 3:41 pm
I am pleased it is now clear, and you are welcome 🙂
July 25, 2021 at 7:47 pm
Hi John, am pleased with the explanation. thanks for that however have one silly doubt –
Option 1 : With the above formula (got exempt for F3) – Opening inventory (500) + Production (2000)- closing Inventory (600) = 1900 right ? why it is 2100 then ?
Option 2 : From the above explanation I understand that
My requirement is = 2000 for production + 600 balance at the end of year = So, should have 2600 unit of inventory – Already 500 units are in hand/warehouse. So remaining purchase or production of inventory is 2100.
May I know what logic is correct ? and why the other one is wrong ?
Thanks in advance,
July 26, 2021 at 7:50 am
Option 2 is correct (except that 2,000 is the sales, not the production)
Option 1 is the ‘formula’ for the sales.
April 6, 2019 at 11:09 am
Thanks a lot for the amazing explanation.. Appreciated 😉
April 7, 2019 at 9:05 am
November 5, 2018 at 9:42 am
Thanks for this lecture
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