Question

Down Under Products, Ltd., of Australia has budgeted sales of its popular boomerang for the next four months as follows:

	Unit Sales
April		86,000
May		90,000
June		126,000
July		98,000

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 month’s unit sales. The inventory at the end of March was 8,600 units.

Required:

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

Answer 1

Month	Opening inventory (A)	Current month sales (B)	Required closing inventory (10% on next month sales) (c )	Units to be produced (B+C-A)
April	8600	86000	9000	86400
May	9000	90000	12600	93600
June	12600	126000	9800	123200
Total units to be produced in the second quarter	303200

Extract of formula used in excel is being attached herewith

Month	Opening inventory (A)	Current month sales (B)	Required closing inventory (10% on next month sales) (c)	Units to be produced (B+C-A)
April	8600	86000	=10%*90000	=+C2+D2-B2
May	9000	90000	=10%*126000	=+C3+D3-B3
June	12600	126000	=10%*98000	=+C4+D4-B4
Total units to be produced in the second quarter	=SUM(E2:E4)