Answer:
Explanation:
To prepare a production budget, we need to consider the sales forecast and any inventory policies the company might have. Typically, companies aim to maintain a certain level of ending inventory to meet future sales demands. For this example, let’s assume Down Under Products wants to keep an ending inventory equal to 10% of the next month’s sales.
Here’s how you can prepare the production budget:
Determine the desired ending inventory for each month:
April: 10% of May’s sales = 10% of 75,000 = 7,500 units
May: 10% of June’s sales = 10% of 92,000 = 9,200 units
June: 10% of July’s sales = 10% of 81,000 = 8,100 units
July: Assume ending inventory for July is 10% of the next month’s sales (if known) or a policy amount.
Calculate the total units needed each month:
Total units needed = Budgeted sales + Desired ending inventory
Subtract the beginning inventory to find the required production:
Required production = Total units needed - Beginning inventory
Let’s assume the beginning inventory for April is 5,200 units.
Production Budget
April:
Budgeted sales: 52,000 units
Desired ending inventory: 7,500 units
Total units needed: 52,000 + 7,500 = 59,500 units
Beginning inventory: 5,200 units
Required production: 59,500 - 5,200 = 54,300 units
May:
Budgeted sales: 75,000 units
Desired ending inventory: 9,200 units
Total units needed: 75,000 + 9,200 = 84,200 units
Beginning inventory: 7,500 units (ending inventory from April)
Required production: 84,200 - 7,500 = 76,700 units
June:
Budgeted sales: 92,000 units
Desired ending inventory: 8,100 units
Total units needed: 92,000 + 8,100 = 100,100 units
Beginning inventory: 9,200 units (ending inventory from May)
Required production: 100,100 - 9,200 = 90,900 units
Total for the Second Quarter:
Total required production: 54,300 + 76,700 + 90,900 = 221,900 units
This production budget ensures that Down Under Products can meet its sales demands while maintaining the desired inventory levels. If you have any specific inventory policies or additional details, we can adjust the calculations accordingly!