Managerial Accounting Quiz: Sales And Production Budgets
10 questions · exam conditions
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Sales And Production BudgetsQuestion 1 of 10

A company is preparing its sales budget for the upcoming quarter. The sales budget in dollars is $800,000 for Q1 and $990,000 for Q2. The selling price per unit was $40 in Q1 but is scheduled to increase to $45 on the first day of Q2. The company maintains an ending finished goods inventory equal to 15% of the following quarter's sales in units. What is the budgeted production in units for Q1?

20,300 units
20,000 units
23,300 units
19,700 units
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Managerial Accounting Quiz

Managerial Accounting Quiz: Sales And Production Budgets

Practice Sales And Production Budgets in Managerial Accounting with focused quiz questions that help you check what you know, review explanations, and build confidence with test-style prompts.

What this quiz covers

This quiz focuses on Sales And Production Budgets, giving you a quick way to practice the rules, question types, and explanations that matter most for Managerial Accounting.

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Try each quiz question before looking at the correct answer. Use the explanations to review missed ideas, then come back to similar questions until the pattern feels familiar.

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Question 1

A company is preparing its sales budget for the upcoming quarter. The sales budget in dollars is $800,000 for Q1 and $990,000 for Q2. The selling price per unit was $40 in Q1 but is scheduled to increase to $45 on the first day of Q2. The company maintains an ending finished goods inventory equal to 15% of the following quarter's sales in units. What is the budgeted production in units for Q1?

  1. 20,300 units (correct answer)
  2. 20,000 units
  3. 23,300 units
  4. 19,700 units
Explanation: This is a multi-step problem that requires converting sales revenue to sales units, being careful to use the correct price for each quarter.
  1. Calculate Q1 sales in units: $800,000 / $40 per unit = 20,000 units.
  2. Calculate Q2 sales in units: $990,000 / $45 per unit = 22,000 units.
  3. Calculate the desired ending inventory for Q1: 15% of Q2 sales in units = 0.15 * 22,000 = 3,300 units.
  4. Calculate the beginning inventory for Q1: 15% of Q1 sales in units = 0.15 * 20,000 = 3,000 units.
  5. Calculate Q1 production: Production = Sales + Ending Inventory - Beginning Inventory = 20,000 + 3,300 - 3,000 = 20,300 units.

Question 2

A company is launching a new product in January. There is no beginning inventory. Sales are projected to be 5,000 units in January and to grow by 20% per month for February and March. The company desires to hold ending inventory equal to 25% of the following month's sales. What is the required production for February?

  1. 6,000 units
  2. 6,300 units (correct answer)
  3. 7,800 units
  4. 7,500 units
Explanation: First, calculate the sales forecasts for all three months.
  • Jan Sales = 5,000 units.
  • Feb Sales = 5,000 * 1.20 = 6,000 units.
  • Mar Sales = 6,000 * 1.20 = 7,200 units. Next, calculate the components for the February production budget.
  • Sales for Feb = 6,000 units.
  • Ending Inventory for Feb = 25% of March Sales = 0.25 * 7,200 = 1,800 units.
  • Beginning Inventory for Feb = Ending Inventory for Jan = 25% of Feb Sales = 0.25 * 6,000 = 1,500 units.
  • Production for Feb = Sales + EI - BI = 6,000 + 1,800 - 1,500 = 6,300 units.

Question 3

A company is preparing its production budget. The chief financial officer requires that the value of ending finished goods inventory not exceed $200,000. Each unit has a production cost of $40. The sales forecast for the period is 12,000 units, and beginning inventory is 4,000 units. If the company adheres to the CFO's inventory value constraint, what is the maximum number of units that can be produced?

  1. 13,000 units (correct answer)
  2. 12,000 units
  3. 16,000 units
  4. 11,000 units
Explanation: This question applies a constraint to the production budget.
  1. First, determine the maximum allowable ending inventory in units. The value cannot exceed $200,000, and each unit costs $40. Maximum EI in units = $200,000 / $40 per unit = 5,000 units.
  2. Next, use the production budget formula with this maximum ending inventory to find the maximum possible production.
  3. Production = Sales + Ending Inventory - Beginning Inventory.
  4. Maximum Production = 12,000 (Sales) + 5,000 (Max EI) - 4,000 (BI) = 13,000 units.

Question 4

Zenith Manufacturing is preparing its production budget for the second quarter. Budgeted sales are 70,000 units in Quarter 2 and 85,000 units in Quarter 3. The company's policy is to maintain a finished goods inventory at the end of each quarter equal to 25% of the next quarter's budgeted sales. The beginning finished goods inventory for Quarter 2 was 17,500 units. Due to a planned factory upgrade, production capacity in Quarter 2 is limited to 72,000 units. The company will prioritize meeting current sales demand. What is the projected ending finished goods inventory for Quarter 2?

  1. 21,250 units
  2. 19,500 units (correct answer)
  3. 17,500 units
  4. 15,000 units
Explanation: The solution requires a multi-step analysis incorporating the production constraint. First, calculate the required production to meet sales and the desired ending inventory policy: Budgeted Sales (70,000) + Desired Ending Inventory (0.25 * 85,000 = 21,250) - Beginning Inventory (17,500) = 73,750 units. Since required production (73,750) exceeds capacity (72,000), actual production will be 72,000 units. Next, calculate the actual ending inventory using the production formula with the constrained production figure: Actual Ending Inventory = Beginning Inventory + Actual Production - Sales. Actual Ending Inventory = 17,500 + 72,000 - 70,000 = 19,500 units.

Question 5

Nova Corp. is preparing its production budget for its single product. The company's policy is to maintain ending finished goods inventory at 20% of the following month's sales. Due to supply chain issues in the prior month, the beginning inventory for March is only 4,000 units, which is below the policy level. Management intends to meet all sales demand for March and fully restore the inventory policy by the end of March. Budgeted sales are as follows: March, 50,000 units; April, 60,000 units. What is the required production for March?

  1. 56,000 units
  2. 58,000 units (correct answer)
  3. 52,000 units
  4. 62,000 units
Explanation: The production budget formula is: Production = Budgeted Sales + Desired Ending Inventory - Beginning Inventory. First, determine the desired ending inventory for March, which is 20% of April's sales: 0.20 * 60,000 units = 12,000 units. The beginning inventory is given as 4,000 units (the actual amount on hand, not the policy amount from the prior period). Therefore, required production for March = 50,000 (Sales) + 12,000 (Ending Inventory) - 4,000 (Beginning Inventory) = 58,000 units.

Question 6

The sales director of a company has prepared a sales forecast assuming a selling price of $50 per unit. The marketing department suggests that increasing the price to $55 per unit would decrease sales volume by 20%. The company's policy is to maintain finished goods inventory at 10% of the following month's sales. The original sales forecast was 10,000 units for October and 12,000 units for November. If the price increase is implemented on October 1st, what would be the budgeted production for October?

  1. 8,160 units
  2. 7,800 units
  3. 7,960 units (correct answer)
  4. 8,000 units
Explanation: First, calculate the new sales volumes for October and November after the price increase. The 20% decrease applies to the original forecasts.
  • New October Sales = 10,000 units * (1 - 0.20) = 8,000 units.
  • New November Sales = 12,000 units * (1 - 0.20) = 9,600 units. Next, calculate the components of the October production budget. The key is that beginning inventory for October was determined at the end of September, based on the original October forecast.
  • Beginning Inventory (as of Oct 1) = 10% of Original October sales = 0.10 * 10,000 = 1,000 units.
  • Desired Ending Inventory (as of Oct 31) = 10% of New November sales = 0.10 * 9,600 = 960 units.
  • Budgeted Production = New October Sales + Desired Ending Inventory - Beginning Inventory = 8,000 + 960 - 1,000 = 7,960 units.

Question 7

A company requires that 20% of the next month's sales in units be on hand as finished goods inventory at the end of each month. In preparing the production budget, the production manager finds a logical inconsistency. The beginning inventory for April was 5,000 units. April sales are budgeted at 20,000 units. The production manager's budget calls for producing 21,000 units in April. If the manager followed the inventory policy, what sales were assumed for May?

  1. 25,000 units
  2. 30,000 units (correct answer)
  3. 21,000 units
  4. 20,000 units
Explanation: This question requires using the production budget data to work backwards and find a missing assumption (May sales).
  1. Start with the production budget formula: Production = Sales + Ending Inventory - Beginning Inventory.
  2. Rearrange to solve for Ending Inventory: Ending Inventory = Production - Sales + Beginning Inventory.
  3. Substitute the given values for April: Ending Inventory = 21,000 - 20,000 + 5,000 = 6,000 units.
  4. The company's policy states that Ending Inventory = 20% of the next month's sales (May sales).
  5. Therefore, 6,000 units = 0.20 * May Sales.
  6. Solve for May Sales: May Sales = 6,000 / 0.20 = 30,000 units.

Question 8

A company is preparing its production budget for the third quarter. The sales forecast is 25,000 units. The company's policy is to maintain an average inventory level of 6,000 units for the quarter. The beginning inventory for the quarter was 5,000 units. How many units must be produced during the quarter?

  1. 26,000 units
  2. 25,000 units
  3. 24,000 units
  4. 27,000 units (correct answer)
Explanation: This problem requires using the average inventory formula to first find the required ending inventory.
  1. The formula for average inventory is: Average Inventory = (Beginning Inventory + Ending Inventory) / 2.
  2. Substitute the given values: 6,000 = (5,000 + Ending Inventory) / 2.
  3. Solve for Ending Inventory: 12,000 = 5,000 + Ending Inventory. So, Ending Inventory = 7,000 units.
  4. Now use the production budget formula: Production = Sales + Ending Inventory - Beginning Inventory.
  5. Production = 25,000 + 7,000 - 5,000 = 27,000 units.

Question 9

A company is preparing a production budget for a two-month period, May and June. Sales are budgeted at 18,000 units for May, 22,000 units for June, and 20,000 units for July. The company's policy is to maintain ending inventory of finished goods at 10% of the following month's sales plus a fixed safety stock of 500 units. The beginning inventory for May was consistent with this policy. What is the total production required for the two-month period of May and June?

  1. 40,000 units
  2. 40,700 units
  3. 39,800 units
  4. 40,200 units (correct answer)
Explanation: To calculate total production for the two-month period, we can use the formula for the entire period: Total Production = Total Sales + Ending Inventory - Beginning Inventory.
  1. Total Sales (May + June) = 18,000 + 22,000 = 40,000 units.
  2. Ending Inventory for the period is the ending inventory for June. EI(June) = (10% of July Sales) + Safety Stock = (0.10 * 20,000) + 500 = 2,000 + 500 = 2,500 units.
  3. Beginning Inventory for the period is the beginning inventory for May. BI(May) = (10% of May Sales) + Safety Stock = (0.10 * 18,000) + 500 = 1,800 + 500 = 2,300 units.
  4. Total Production = 40,000 + 2,500 - 2,300 = 40,200 units.

Question 10

The marketing department of a company has revised its sales forecast for all future periods downward by 20% due to new competition. The company's policy is to maintain a finished goods inventory equal to 15% of the following month's sales. How will the percentage change in the current month's required production compare to the 20% decrease in the sales forecast?

  1. The percentage decrease will be exactly 20%.
  2. The percentage decrease will be less than 20%.
  3. The percentage decrease will be greater than 20%. (correct answer)
  4. Production will increase to compensate for lower sales revenue.
Explanation: The percentage decrease in production will be greater than the percentage decrease in sales. Production = Current Sales + Ending Inventory - Beginning Inventory. Let S_c and S_n be current and next month's sales. Production = S_c + 0.15S_n - 0.15S_c (since BI is based on current sales). When the forecast changes, the new production is 0.80S_c + 0.15(0.80S_n) - 0.15S_c. The beginning inventory (0.15S_c) was based on the old forecast and is now a larger percentage of the new current sales, creating a larger downward pull on production. Let's use an example. Old sales: S_c=10,000, S_n=12,000. Old Production = 10,000 + (0.1512,000) - (0.1510,000) = 10,000 + 1,800 - 1,500 = 10,300. New sales: S_c=8,000, S_n=9,600. New Production = 8,000 + (0.159,600) - 1,500 (BI is unchanged) = 8,000 + 1,440 - 1,500 = 7,940. Decrease = 10,300 - 7,940 = 2,360. Percentage decrease = 2,360/10,300 = 22.9%, which is greater than 20%.