Question

Refer to Exhibit 9-6 on page 521 (Production Budget) to format your table in your answer. Arrows are not needed.

Chef-Tea Ltd produces a tea powder, sold in plastic-free 5-ounce boxed packages for $10 each. Demand is high for this product. Chef-Tea expects the following level of sales in the next four months:

November                         50,000 boxes

                              December                          120,000 boxes

                              January                              80,000 boxes

                              February                            100,000 boxes

During the current month (October) Chef-Tea expects sales of 35,000 boxes; March sales are expected to be 110,000 boxes. The company policy is for the month’s ending inventory to be 5% of next month’s unit sales. Complete a Production Budget, showing the number of boxes to be produced each month from November to February.

Answer 1

Particulars November December January February

Sales during the month 50000 120000 80000 100000

Add:Closing Inventory   6000 4000 5000 5500 (110000*5%)

(5% of Next month sales)

Less:Opening Inventory 2500 6000 4000 5000

Required production 53500 118000 81000 100500

Opening Inventory of November will be closing Inventory of October.

October closing Inventory will be November sales*5%=50000*5%=2500

This will be opening stock of November.