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		64,000
May		80,000
June		104,000
July		87,000

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 9,600 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
For 2nd Quarter
	April	May	June	Quarter
Budgeted sales	64,000	80,000	104,000	248,000
Add: Desired Ending Inventory	80,000*15% = 12,000	104,000*15% = 15,600	87,000*15% = 13,050	87,000*15% = 13,050
Total Needs	76,000	95,600	117,050	261,050
Less: Beginning inventory	9,600	80,000*15% = 12,000	104,000*15% = 15,600	9,600
Required production	66,400	83,600	101,450	251,450

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