CMA Study Group

Chapter 2

  • 1.  Chapter 2

    Posted 12 days ago
    Which one of the following would cause a company's production budget to decrease?

    *Source: Retired ICMA CMA Exam Questions.

    A. An increase in direct labor costs per unit
    B. A decrease in units produced per direct labor hour
    C. A decrease in required ending inventory
    D. An increase in beginning direct labor inventory.



    I know that production= Sales +Ending Inventory- Beginning Inventory.

    But I don't understand how the answer is C.

    Can someone explain how I should reach the answer?

    Thank you,
    Sanobar

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    Sanobar Anjum

    Pickering ON
    Canada
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  • 2.  RE: Chapter 2

    Posted 12 days ago
    Hi,
    Try apply some numbers to it.
    you know that production budget starts with budgeted sales then desired ending inventory is added to get the total needed then the beginning inventory is subtracted to get the amount of units to be produced (budgeted production in units).
    Concept:The production budget is concerned with units only. Product pricing is not a consideration since the goal is purely to plan output and inventory levels and necessary manufacturing activity.
    Say, budgeted sales 5000 units, desired ending inventory 1000 units, beginning inventory 500 units.
    Units to be produced = 5000 +1000 - 500 = 5500 units.
    Now what if desired ending inventory is 1500 units. calculate the production budget again,
    Units to be produced = 5000 + 1500 - 500 = 6000 units.
    Compare both cases. conclude that increment in desired ending inventory units led to increment in production budget. A change in beginning inventory will have a reverse effect on the production budget.

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    Adham Mourad
    Accountant
    Doha
    Qatar
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  • 3.  RE: Chapter 2

    Posted 11 days ago
    Thank you. That makes sense.

    Thank you very much.
    Sanobar

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    Sanobar Anjum
    Academic
    Pickering ON
    Canada
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