Prepare the company\'s production budget for the upcoming fiscal year. Question

Question

Prepare the company's production budget for the upcoming fiscal year.

Question 1 (35 marks) (A) The marketing department of Graber Corporation has submitted the following sales forecast for the upcoming fiscal year Quarter I Quarter 2 Quarter 3Quarter 4 Budgeted Sales Units 16,000 15,000 14,000 15,000 The selling price of the company's product is $22.00 per unit. Management expects to collect 75% ofsales in the quarter in which the sales are made, 20% in the following quarter, and 5% of sales are expected to be uncollectible. The beginning balance of account receivable, all of which is expected to be collected in the first quarter is $66,000. The company expects to start the first quarter with 3,200 units in finished goods inventory Management desires an ending finished goods inventory in each quarter equal to 20% of the next quarter's budgeted sales. The desired ending finished goods inventory for the fourth quarter is 3,400 units.

Explanation / Answer

SOLUTION

Production Budget

Ending inventory = 20% of next quarter's sales i.e. for Quarter 1- 20% * 15,000 = 3,000

Quarter 1 Quarter 2 Quarter 3 Quarter 4 Year Budgeted unit sales 16,000 15,000 14,000 15,000 60,000 Add: Desired ending inventory 3,000 2,800 3,000 3,400 3,400 Total units needed 19,000 17,800 17,000 18,400 63,400 Less: Beginning inventory (3,200) (3,000) (2,800) (3,000) (3,200) Required production 15,800 14,800 14,200 15,400 60,200

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