2. Production Budget: Down Under Products, Ltd., of Australia has budgeted sales
ID: 2784931 • Letter: 2
Question
2. Production Budget: Down Under Products, Ltd., of Australia has budgeted sales of its popular boomerang for the next four months as follows:
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 month’s sales. The inventory at the end of March was 5,000 units. 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.
Sales in Units May ..90,000 80,000 July . ..Explanation / Answer
The no. of units to be Produced each month are as follows:
April : The Closing Inventory should be 10% of Sales in May = 10% of 75000 = 7500
Opening Inventory = 5000
Sales = 50000
Thus the units to be Produced = Sales + Closing Inventory - Opening Inventory = 50000 + 7500 - 5000 = 52500 Units
May :
The Closing Inventory should be 10% of Sales in June = 10% of 90000 = 9000
Opening Inventory = 7500
Sales = 75000
Thus the units to be Produced = Sales + Closing Inventory - Opening Inventory = 75000 + 9000 - 7500 = 76,500 Units
June :
The Closing Inventory should be 10% of Sales in July = 10% of 80000 = 8000
Opening Inventory = 9000
Sales = 90000
Thus the units to be Produced = Sales + Closing Inventory - Opening Inventory = 90000 + 9000 - 8000 = 91000 Units
Now the Total Units to be Produced for the Quarter are : 52,500 + 76,500 + 91000 = 220,000
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