Question

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

	Sales in Units
April		84,000
May		90,000
June		124,000
July		97,000

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 20% of the following month’s sales. The inventory at the end of March was 16,800 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.

Answer 1

Down Under Products, Ltd.,

Production Budget

	April	May	June	Quarter
Budgeted unit sales	84,000	90,000	124,000	298,000
Desired ending inventory units	18,000 (90,000*20%)	24,800 (124,000*20%)	19,400 (97,000*20%)	19,400
Total needs	102,000	114,800	143,400	317,400
Beginning inventory units	(16,800)	(18,000)	(24,800)	(16,800)
Required production in units	85,200	96,800	118,600	300,600

* Ending inventory of a particular month is the beginning inventory for the next month.