Question

Down Under Products, Ltd., of Australia has budgeted sales of its popular boomerang for the next four months as follows: April May June July Unit Sales 58,000 75,000 98,000 84,000 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 15% of the following month's unit sales. The inventory at the end of March was 8,700 units. Required: Prepare a production budget by month and in total, for the second quarter. Down Under Products, Ltd., Production Budget April May June Quarter Budgeted units sales units sales Total needs Required production in units

Answer 1

Answer:

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

Down under products Ltd.,
Production Budget
	April	May	June	Quarter
Budget unit sales	58000	75000	98000	231000 (= 58000 + 75000 + 98000)
Add: Desired units of ending finished goods inventory (15% of the following month's unit sales) ( Note 1 )	11250	14700	12600	12600
Total Needs	69250	89700	110600	243600
Less: Units of beginning finished goods inventory ( Note 2)	8700	11250	14700	8700
Required production in units	60550	78450	95900	234900

Notes:

1) Desired units of ending finished goods inventory (15% of the following month's unit sales )

Desired units of ending finished goods inventory = Units sale of following month × 15%

April = 75000 × 15% = 11250

May = 98000 × 15% = 14700

June = July's unit sales × 15% = 84000 × 15% = 12600

In the quarter column we take ending month ie. June month inventory amount.

2) units of beginning finished goods inventory will be taken as last month's units of ending finished goods

Like inventory at the end of march is taken as beginning finished goods inventory of April month.

In the quarter column ,here we have taken the beginning inventory amount.