Question

Electro Company manufactures an innovative automobile transmission for electric cars. Management predicts that ending finished goods inventory for the first quarter will be 90,000 units. The following unit sales of the transmissions are expected during the rest of the year: second quarter, 450,000 units; third quarter, 525,000 units; and fourth quarter, 475,000 units. Company policy calls for the ending finished goods inventory of a quarter to equal 20% of the next quarter’s budgeted sales. Prepare a production budget for both the second and third quarters that shows the number of transmissions to manufacture.

Short answer

Electro Company will not produce any goods in the second quarter whereas15,000 unitsof goods will be manufactured in thethird quarter.

Step-by-step solution

Introduction

Each organization manufactures goods according to the quarters during the year. Each production quantity is accumulated for every quarter to increase the number of sales units.

Production budget

Electro Company
Production budget
For second and third quarters
Particulars	Second quarter	Third quarter
Sales	450,000	525,000
Multiply: Ending finished goods	20%	20%
Finished goods required	90,000	105,000
Less: Beginning inventory	90,000	90,000
Units to be produced	-	15,000