Question

On January 1, 2020, the Carla Vista Company budget committee has reached agreement on the following data for the 6 months ending June 30, 2020.

Sales units: First quarter 5,500; second quarter 6,600; third quarter 7,300.
Ending raw materials inventory: 40% of the next quarter’s production requirements.
Ending finished goods inventory: 25% of the next quarter’s expected sales units.
Third-quarter production: 7,740 units.

The ending raw materials and finished goods inventories at December 31, 2019, follow the same percentage relationships to production and sales that occur in 2020. 5 pounds of raw materials are required to make each unit of finished goods. Raw materials purchased are expected to cost $5 per pound.

Prepare a production budget by quarters for the 6-month period ended June 30, 2020.

Answer 1

Production budget = 5,775 units

Step-by-step explanation:

The production budgeted for a particular period is the expected units to be produced after adjusting the sales budget figures for opening and closing inventories.

Production budget = sales budget + closing inventory - opening inventory

Closing inventory = 25% × Second Quarter 2 sales

Closing Inventory = 25% × 6,600= 1650

Opening inventory = 25% × Year 2020 First Quarter sales

= 25%× 5,500 = 1,375

Production budget = 5,500 + 1650 - 1375= 5775 units

Production budget = 5,775 units