Question

In: Accounting

Down Under Products, Ltd., of Australia has budgeted sales of its popular boomerang for the next...

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.

Solutions

Expert Solution

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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