Question

Which of the following sequences is correct? Select one a. Cash receipts budget-sales budget-production budget-budgeted income statement b. Sales budget-production budget-direct materials budget-budgeted income statement c Budgeted income statement-direct materials budget-production budget-sales budget O d Inventory budget-production budget-sales budget-selling and administrative budger

Answer 1

Of all the budgets Sales budget needs to be finished first. As it determines the the quantity of goods to be sold thus determining quantity of goods to be produced, material required, labour hours to be spent etc. (Unless there is capacity constraint, in which case the first thing to observe is that capacity constraint)

After Sales budget, production budget is to be prepared and next the Direct material budget and direct labour budget to facilitate such production. At last Budgeted income statement needs to prepared.

So, option B is correct - Sales budget, Production budget, Direct material budget, Budgeted income statement.

Option A is wrong as it has cash budget first, we cannot have the cash budget first because we do not know the sales amount

Option C is wrong because it has Budgeted income statement at beginning and we cannot know any sales and purchases figures as those budgets are not yet prepared

Option D is wrong because it has inventory budget at beginning, we cannot prepare inventory budget without preparing production budget.