Question

om Saipan Company Saipan Company produces and sells two types of autom produces and sells two types of automobile batteries, the heavy duty HD- 240 and the long life LL-250. The 2017 sales budget for the two products is as follows: 1st quarter 2nd quarter 3rd quarter 4th quarter HD-240 5,000 7,000 8,000 10,000 LL-250 10,000 18,000 20,000 35,000 The January 1, 2017 inventory of HD-240 and LL-250 units is 4,000 and 8,000 respectively. Management desires an ending inventory each quarter equal to 80% of the next quarter's sales. Sales in the first quarter of 2018 are expected to be 40% higher than sales in the same quarter in 2017. Prepare separate quarterly production budgets for each product by quarters.

Answer 1

Production budget for product HD- 24

	1st quarter	2nd quarter	3rd quarter	4th quarter
Sales (units)	5,000	7,000	8,000	10,000
+ Ending inventory of Finished Goods	7,000 x 80% = 5,600	8,000 x 80% = 6,400	10,000 x 80% = 8,000	7,000 x 80% = 5,600
Total finished goods inventory needed	10,600	13,400	16,000	15,600
-Beginning inventory of Finished Goods	- 4,000	- 5,600	- 6,400	- 8,000
Production units	6,600	7,800	9,600	7,600

Production budget for product LL - 250

	1st quarter	2nd quarter	3rd quarter	4th quarter
Sales (units)	10,000	18,000	20,000	35,000
+ Ending inventory of Finished Goods	18,000 x 80% = 14,400	20,000 x 80% = 16,000	35,000 x 80% = 28,000	14,000 x 80% = 11,200
Total finished goods inventory needed	24,400	34,000	48,000	46,200
-Beginning inventory of Finished Goods	- 8,000	- 14,400	- 16,000	- 28,000
Production units	16,400	19,600	32,000	18,200

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