Exercise 8-2 Production Budget LO8-3] Down Under Products, Ltd., of Australia ha

Question

Exercise 8-2 Production Budget LO8-3] Down Under Products, Ltd., of Australia has budgeted sales of its popular boomerang for the next four months as follows: April May June July Sales in Units 80,000 90,000 120,000 95,000 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 10% of the following months sales. The inventory at the end of March was 8,000 units. Required: Prepare a production budget for the second quarter, in your budget, show the number of units to be produced each month and for the quarter in total. Down Under Products, Ltd. Production Budget April May June Quarter Budgeted units sales Total needs Required production in units

Explanation / Answer

Down Under Products Ltd Production Budget April May June Quarter Budgeted unit sales                              80,000                                   90,000                                 120,000                            290,000 Add: Ending inventory 90,000*10% = 9,000 120,000*10% = 12,000 95,000*10% = 9,500 95,000*10% = 9,500 Total needs                              89,000                                 102,000                                 129,500                            299,500 Less: Beginning inventory                                8,000 90,000*10% = 9,000 120,000*10% = 12,000                                8,000 Required production in units                              81,000                                   93,000                                 117,500                            291,500

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