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Hi my dear Tutor, I need your help
Budgeted sales of X for december are 18000 units.At the end of the production process for X, 10% production units are scrapped as defective.Opening inventories of X for December are budgeted to be 15000 units and closing inventories will be 11400 units.All inventories of finished goods must have successfully passed the quality control check.WHat is the production budget for x for december?
Budgeted sales-18000
add closing stock-11400
less opening stock-15000
equal budgeted production-14400Why we do not take into consideration the normal loss of 1800(18000*10%) in budgeted production ?
From my comprehension, It should be based on production units or production inputs and in this case it is budgeted sales that is why normal loss is not taking into account.this is my understading, i do not know whether it is right or not, but need your help tooThanks in advance
The normal loss is a % of the production (not of the sales) and all the inventories have passed the check.
So they need to produce 14,400 ‘good’ units. Since this is after 10% being defective, then will actually need to work on 100/90 x 14,400 = 16,000 units.
(10% of them, i.e. 1,600 will be defective which leaves them with 14,400 ‘good’ units)
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