Question

Blue Devil Corporation manufactures and sells wireless keyboards. Expected sales of keyboards for upcoming months are as follows: March 50,000 April 55,000 May 60,000 June 52,000 July 58,000 November 37,000 December 39,000 Management likes to maintain a finished goods inventory equal to 20% of the next month's estimated sales. Required: Prepare the company's production budget for the second quarter of this year. Include a column for each month and a total column for the entire quarter.

Answer 1

Production budget for 2nd quarter :

	April	May	June	2nd quarter
Expected sales units	55,000	60,000	52,000	167,000
(+) Desired ending inventory [ 20% of the next month's expected sales ]	12,000 [ 20% * 60,000 ]	10,400 [ 20% * 52,000 ]	11,600 [ 20% * 58,000 ]	11,600
Total units required	67,000	70,400	63,600	178,600
(-) Beginning inventory	( 11,000 )	( 12,000 )	( 10,400 )	( 11,000 )
Units to be produced	56,000	58,400	53,200	167,600

NOTE : 1) Ending inventory of one month becomes the opening inventory of the immediate next month. Ending inventory of March month will be 20% of the April month's expected sales units which comes to 11,000 units [ i.e. 20% * 55,000 ] and these 11,000 units will become the opening inventory of April month. Similarly the ending inventory of April and May month is taken to be the opening inventory of May and June month respectively.

2) As the second quarter ends with the end of June month. the ending inventory of June month is taken to be the ending inventory of second quarter and as the second quarter starts from April month, the opening inventory of April month is taken to be the opening inventory of second quarter.