Electro Company manufactures an innovative automobile transmission for electric cars. Management predicts that ending finished goods inventory for the first quarter will be 86,000 units. The following unit sales of the transmissions are expected during the rest of the year: second quarter, 430,000 units; third quarter, 455,000 units; and fourth quarter, 247,500 units. Company policy calls for the ending finished goods inventory of a quarter to equal 20% of the next quarter's budgeted sales. Prepare a production budget for both the second and third quarters that shows the number of transmissions to manufacture.

Production Budget

Quarter 2= 435,000  units

Quarter 3=  413,500   units

Explanation:

The production budgeted for a particular period is the expected units to be produced after adjusting the sales budget figures for opening and closing inventories.  

Production budget = Sales volume + closing inventory - opening inventory  

Quarter 2

Closing inventory in second quarter =20%× Quarter 3 sales= 20%×455,000

Opening inventory in Quarter 2  = Closing inventory quarter 1= 20% × quarter 2= 20%× 430,000

Production budget in Quarter 2 = 430,000 + (20%×455,000) - (20%× 430,000)=435000

Quarter 3

Closing inventory in third quarter =20%× Quarter 4 sales= 20%× 247,500

Opening inventory in Quarter 3  = Closing inventory quarter 2= 20%×455,000

 Production budget in Quarter 3 = 455,000 + (20%× 247,500) +(20%×455,000)= 413500

Production Budget

Quarter 2= 435,000

Quarter 3=  413,500

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