Q35390425

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Andhra University *

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ACCOUNTING

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Accounting

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Nov 24, 2024

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docx

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Q35390425 AID: 1825 | 20/03/2019 [Delimiter] [General guidance] [Section: Concepts and reason] Budget: Budget is a quantitative estimate of the work to be performed. It acts as a tool for the activities to be performed in the future. It is the process of planning before acting. Budgeting: Budgeting is the process of planning the work that is to be performed. It is the process of comparing planned estimate with the actual results. It is used for decision making. Inventory: Inventory refers to the goods purchased by a company from manufacturers for reselling them to the customers. Transportation charges at the time of purchase, storage, insurance cost, and many more are included in the merchandise inventory account. Inventory is one of the important current assets of the company. [Section: Fundamentals] Sales: Sales is an activity of selling the goods in the market which are sold by the seller and purchased by the buyer. It is the main source of revenue for the company. It is necessary to have consideration for sales. Beginning inventory: It refers to the amount of inventory available at the beginning of the accounting period. It is the previous year’s ending inventory carried forward to the beginning of the next financial year. Ending inventory: It refers to the inventory that is left at the end of an accounting period. The cost of the inventory left is shown as ending inventory in the balance sheet at the end of an accounting year. Finished goods inventory: Finished goods inventory are the end products that are available for sale from which some units are sold and some are left unsold in the closing stock. They are said to be the assets of the company. [Delimiter] [Starting Hint] Based on the information given in the question, determine the amount of ending inventory. [Delimiter] [Step 1] Determine the amount of ending inventory: Therefore, the ending inventory of March is 2,550, April is 2,850, and May is 2,400. Workings: [Explanation] It is given that the budgeted sales units are 15,000 for March, 17,000 for April, 19,000 for May, and 16,000 for June. The percentage of next month’s budgeted sales as inventory is 15 percent for 4 months. Thus, 15 percent of sales of next month will be the ending inventory of the month. For March, the sales of April should be multiplied with 15 percent. Thus, 17,000 should be multiplied with 15 percent to obtain 2,550. It is the ending inventory of March. It is followed for other months. For April, 19,000 units are multiplied with 15 percent. It is 2,850. For June, 16,000 units are multiplied with 15 percent. It is 2,400. Therefore, the ending inventory of March is 2,550, April is 2,850, and May is 2,400. [Common mistakes] There are no budgeted sales for July. Therefore, the ending units of June cannot be taken. [Hint for next step] Based on the information given in the question, determine the estimated number of ovens that are produced in March. [Delimiter] [Step 2] Determine the estimated number of ovens that are produced in March.

Therefore, the estimated number of ovens that are produced in March is 15,300 units. Working notes: [Answer] The estimated number of ovens to be produced in March is 15,300. [Answer End] [Answer Choice: Wrong] The estimated number of ovens to be produced in March is 14,650. [Answer Choice End] [Answer Choice: Wrong] The estimated number of ovens to be produced in March is 13,900. [Answer Choice End] [Answer Choice: Correct] The estimated number of ovens to be produced in March is 15,300. [Answer Choice End] [Answer Choice: Wrong] The estimated number of ovens to be produced in March is 12,750. [Answer Choice End] [Explanation] It is calculated that the ending units for March is 2,550, April is 2,850, and May is 2,400. To calculate the estimated production, the sales should be added with the ending inventory and deducted by the beginning inventory. The estimated number of ovens that are produced in March is to be calculated. Thus, 15,000 units are added with 2,550 units and deducted by 2,250 units. It is known that the ending units of the last period will be the beginning inventory of the current period. It is given that the ending inventory of February is 2,250. It should be taken as the beginning inventory of March. Therefore, the estimated number of ovens to be produced in March is 15,300. [Common mistakes] The ending units of the last period will be the beginning inventory of the current period. It is incorrect to take the beginning inventory of the period as the ending inventory of the next period or the current period.

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