Question

im currently looking for information on production budgets

- what are they useful for and what are their downfalls and what can managers get from them and use to run their business better.

- also changes to desired ending inventory whether that be increases or decreases in the percentage what will that do to a business and what would be best for a food production company

- anything else regarding production budgets that can hwlp me understand them and explain them and what factors influence them wpuld be appreciated

Answer 1

Answer 1 and 3) Production budget

After determining the sales budget, the production budget is developed so that it incorporates the company's sales budget along with its capacity and inventory objectives. If the company would like to increase its inventory, it will need to include this in its production plans. Similarly, if the comapny wants to descrease inventory, it will need to produce fewer units than it plans to sell. The final determination of how many units to produce during the period is done in the production budget.

The production budget will of course need to include production from any new capital projects planned to begin production during the year.

The production budget will ofcourse include how many and when the units will be produced. The units must be produced prior to the time when they will be sold. If sales are expected in the early part of the year, production needs to be done early. If sales are expected to be later in the year, production needs to take place later in the year or the company will need to pay significant storage costs.

Note: If the prices of the inputs to the product are expected to change significantly in the future, the changes must also be taken into account in determining when and how many units to produce. As much as possible, the company will want to purchase inputs to produce its products when the prices of the inputs are lower rather than higher.

The production budget in number of units to be produced provides the foundation for the development of following four budgets:

1) Direct materials usage budget

2) Direct materials purchase budgets, which is created in same way as the productiom budget, taking into account the desired change im inventory of raw material.

3) Direct labor costs budget.

4) Factory overhead budgets, including both variable costs and fixed costs. Fixed factory overheads costs that fall withij relevant range donot change as production level changes, but if the budgeted production is outside the relevant range, appropriate adjustments need to be made to fixed manufacturing costs.

Because of the way the individual budgets are connected to each other, a change in one budget will almost always effect at least one other budget.

Factors influencing production budget are:

1) Location

2) Availibility of raw material

3) climate

4) Finance

5) Transportation of goods

6) Government policies

7) Demand of customers in market

Example of Production budget for chairs for year ending december 31, 2003 for x limited :

Budgeted sales in units = 4000

Plus : Ending finished goods inventory required = 350

Total units required = 4350

Minus : Beginning finished goods inventory= 300

Finished goods units to be produced = 4050