Question

After defining the two types of budget, ss a manager, interpret the following budget: А D 2 3 Tucson Tortilla Production Budget For the Quarter Ended March 31 Month January February 30,000 20,000 2,000 2,500 32,000 22,500 3,000 2,000 29,000 20,500 10% 4 5 6 Unit sales cases) 7 Plus: Desired end inventory 8 Total needed 9 Less: Beginning inventory 10 Number of units to produce 11 <10% March 25,000 3,200 28,200 2,500 25,700 1st Quarter 75,000 3,200 78,200 3,000 75,200 NOTE: Management wants to maintain an ending inventory equal to 10% of the next month's projected sales. Projected April sales are 32,000 units. The quarter begins January 1 and ends March 31.

Answer 1

The given budget is the production budget for Tucson Tortilla, for the 1st Quarter, i.e January , February and March months.

The production budget estimates the required units to be produced based on the sales forecast, so to make production budget the Budgeted sales units are must. Then some companies requires to maintain a level of additional closing stock of finished goods, by producing extra than required sales unitsof the month so as to have an stock for emergency demands, this closing stocks also needs to be produced so they are added to it. Further any opening units in the stocks are used for the selling purpose, so production to that extent is reduced.

Based on the above discussion the Budgeted Production units = Production needed for Budgeted sales + Closing Inventory requirement - Opening stock availability.

In the given case : For January :

The budgeted production units based on sales forecast = 30000 , and desired end inventory is 10% of next months projected sales.

Thus desired end inventory = 20000 units *10% = 2000 units.

Now we know that closing inventory is 10% of projected sales of next month,so for January, the opening stock will be equal to the closing of december , and closing for december = 10% of budgeted sales of january = 10% of 20000

Thus opening stock for January = 2000 units.

For February and March : The sales forecast is given and the closing is valued as next months projected sales * 10%, For march the closing requirement = April months sales * 10% = 32000 units * 10% = 3200 units

Here the opening stock is the closing stock of the previous month.

For Quarter : The Sales units will be the total of all the units of sales of Jan , Feb and March. and closing units will include only the closing of march sales, as the january and february , closing are adjusted with the opening of next month so there are netted off, only the march closing units will be required for the production.

Further with regards to the beginning inventory,it will be only for the beginning of the January as all other months are netted off in the next months.