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

Answer and Explanation:

The preparation of production budget is shown below:-

Carla Vista Company

Production budget

For 6 months Ending June 31

Quarter 1 Quarter 2 Six months

Expected unit sales 5,500 6,600

Add: Desired ending finished

goods unit 1,650 1,825

(6,600 × 25%) (7,300 × 25%)

Total required units 7,150 8,425

Less: beginning finished

goods unit 1,375 1,650

(5,500 × 25%) (6,600 × 25%)

Required production

units 275 6,775 7,050