Question

Down Under Products, Ltd., of Australia has budgeted sales of its popular boomerang for the next four months as follows:

	Unit Sales
April		54,000
May		75,000
June		94,000
July		82,000

The company is now in the process of preparing a production budget for the second quarter. Past experience has shown that end-of-month inventory levels must equal 20% of the following month’s unit sales. The inventory at the end of March was 10,800 units.

Required:

Prepare a production budget by month and in total, for the second quarter.

Answer 1

	April	May	June	Quarter
Budgeted sales	54,000	75,000	94,000	223,000
(+) Desired ending finished goods inventory	15,000 (20% * 75,000)	18,800 (94,000 * 20%)	16,400 (20% * 82,000)	16,400
Total needs	69,000	93,800	110,400	239,400
(-) Beginning finished goods inventory	10,800	15,000	18,800	10,800
Required Production	58,200	78,800	91,600	228,600