Down Under Products, Ltd., of Australia has budgeted sales of its popular boomerang for the next four months as follows: Sales in Units
April 70,000
May 85,000
June 110,000
July 90,000
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 15% of the following month’s sales. The inventory at the end of March was 10,500 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.

Results are below.

Explanation:

Giving the following information:

Sales in Units

April 70,000

May 85,000

June 110,000

July 90,000

Desired ending inventory= 15% of the following month’s sales.

The inventory at the end of March was 10,500 units.

To calculate the production required for each month, we need to use the following formula:

Production= sales + desired ending inventory - beginning inventory

April:

Sales= 70,000

Desired ending inventory= 85,000*0.15= 12,750

Beginning inventory= (10,500)

Total production= 72,250

May:

Sales= 85,000

Desired ending inventory= 110,000*0.15= 16,500

Beginning inventory= (12,750)

Total production= 88,750

June:

Sales= 110,000

Desired ending inventory= 90,000*0.15= 13,500

Beginning inventory= (16,500)

Total production= 107,000

Total quarter= 268,000

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