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A Production Budget Example

Learn more about a production budget.

The Production Budget

The production budget must be adequate to meet budgeted sales and to provide for the desired ending inventory.

  • The management at Royal Company wants ending inventory to be equal to 20% of the following month’s budgeted sales in units.
  • On March 31st, 4,000 units were on hand.

Preparing the production budget….

Note: If Royal was a merchandising company it would prepare a merchandise purchase budget instead of a production budget.

Example

Budget sales: April 20k, May 50k, June 30k, Q 100k. Add: Desired ending inventory: April 10k, May 6k, June 5k, Q 5k. Total needs: April 30k, May 56k, June 35k, Q 105k. Less: Beginning inventory. April 4k, May 10k, June6, Q 4k. Required production. April 26k, Mat 46k, June 29k, Q 101k. July sales are expected to be 25k units

Over to you

Take a look and the example and make sure you understand how to create the Production Budget.

 

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