Question

Preparing an operating budget—sales and production budgets

Lugo Company manufactures drinking glasses. One unit is a package of eight glasses, which sells for $30. Lugo projects sales for April will be 2,000 packages, with sales increasing by 250 packages per month for May, June, and July. On April 1, Lugo has 325 packages on hand but desires to maintain an ending inventory of 20% of the next month’s sales. Prepare a sales budget and a production budget for Lugo for April, May, and June.

Short answer

Answer

Budgeted tablets to be produced	2,125	2,300	2,550	2,800
Budgeted sales revenue	$60,000	$67,500	$75,000	$82,500

Step-by-step solution

Preparation of sales budget

	April	May	June	July
No. of units to be sold	2,000	2,250	2,500	2,750
Selling price per unit	X $30	X $30	X $30	X $30
Budgeted sales revenue	$60,000	$67,500	$75,000	$82,500

Preparation of production budget

	April	May	June	July
No. of units to be sold	2,000	2,250	2,500	2,750
Plus: Desired tablets in ending inventory	450	500	550	600
Total units needed	2,450	2,750	3,050	3,350
Less: Tablets in beginning inventory	325	450	500	550
Budgeted tablets to be produced	2,125	2,300	2,550	2,800