Question

Ruiz Co. provides the following sales forecast for the next four months. April May June July Sales (units) 530 610 560 650 The company wants to end each month with ending finished goods inventory equal to 30% of next month's forecasted sales. Finished goods inventory on April 1 is 159 units. Prepare a production budget for the months of April, May, and June

Answer 1

Answer:

Ruiz Co.

Production Budget

                                    April     May     June

Sales (units)                 530      610       560

Ending inventory         183       168        195

Total units available    713       778       755

Beginning inventory    159      183        168

Production                  554     595        587

Explanation:

a) Data and Calculations:

Production Budget

                                    April     May     June     July

Sales (units)                 530      610       560     650

Ending inventory         183       168        195      0

Total units available    713       778       755     650

Beginning inventory    159      183        168      195

Production                  554     595        587     455

b) The production budget shows the units to be produced.  Ruiz Co. can begin the budgeting by estimating the sales units (market demand) for each period.  The sales unit is then added to the ending inventory to obtain the total units that are available for sale.  From this figure, the beginning inventory is deducted to arrive at the units that must be produced to meet the sales target.