Question

Blue Wave Co. predicts the following unit sales for the coming four months: September, 4,000 units; October, 5,000 units; November, 7,000 units; and December, 7,600 units. The company’s policy is to maintain finished goods inventory equal to 60% of the next month’s sales. At the end of August, the company had 2,400 finished units on hand. Prepare a production budget for each of the months of September, October, and November.

Short answer

The total number of units to be produced in September, October and November will be 4,600 units, 6,200 units and 7,360 units.

Step-by-step solution

Introduction

The production budget is the type of budget prepared for the production department of an organization responsible for the manufacturing of goods and services.

Production budget

Blue Wave Co
Production budget
For the month of September, October and November
Particulars	September	October	November
Budgeted sales	5,000	7,000	7,600
Multiply: Finished goods	60%	60%	60%
Budgeted ending inventory	3,000	4,200	4,560
Add: Budgeted unit sales	4,000	5,000	7,000
Required units	7,000	9,200	11,560
Less: Beginning inventory	2,400	3,000	4,200
Units to be produced	4,600	6,200	7,360