Hospitable Co. provides the following sales forecast for the next four months: The company wants to end each month with ending finished goods inventory equal to 20% of next month’s sales. Finished goods inventory on April 1 is 128 units. Assume July’s budgeted production is 680 units. Prepare a production budget for the months of April, May and June.
Expert Answer
HOSPITABLE COMPANY | ||||||||
Production Budget | ||||||||
For April, May and June | ||||||||
April | May | June | ||||||
Next Month’s Budgeted Sales(Units) | a | 720 | 670 | 670 | ||||
Ratio of Inventory to Future Sales | b | 20% | 20% | 20% | ||||
Required Units of Ending Inventory | c=a*b | 144 | 134 | 134 | ||||
Sales (Units) | d | 640 | 720 | 670 | ||||
Required Units of available production | e=c+d | 784 | 854 | 804 | ||||
Avaialble Beginning Inventory | f | 128 | 144 | 134 | ||||
Units to be produced | e-f | 656 | 710 | 670 |