The company wants to end each month with ending finished goods inventory equal to 25% of next month's forecasted sales. Finished goods inventory on April 1 is 190 units. Prepare a production budget for the months of April, May, and June.

Complete Question:

Ruiz Co. provides the following sales forecast for the next four months:

April May June July

Sales (units) 500 580 540 620

The company wants to end each month with ending finished goods inventory equal to 25% of next month's forecasted sales. Finished goods inventory on April 1 is 190 units. Assume July's budgeted production is 540 units. In addition, each finished unit requires five pounds (lbs.) of raw materials and the company wants to end each month with raw materials inventory equal to 30% of next month's production needs. Beginning raw materials inventory for April was 663 pounds. Assume direct materials cost $4 per pound.

Prepare a production budget for the months of April, May, and June.

Solution:

Plan for production is the calculation or forecast of the number of units to be produced by the company to balance the expected revenue or plan inventory and stocks.

Prepare the production Bud:

Company R

Production Budget

For the months of April, May and June

Particulars (In units) April May June

Next month's budgeted sales (units) 580 540 620

Ratio of inventory to future sales 25% 25% 25%

Budgeted ending inventory (units) 145 135 155

Budgeted unit sales for month 500 580 540

Required units of available production 645 715 695

Budgeted beginning inventory (units) (190) (145) (135)

Units to be produced 455 570 560