Tyler Co. predicts the following unit sales for the next four months: April, 3,100 units; May, 4,900 units; June, 7,000 units; and July, 2,800 units. The company’s policy is to maintain finished goods inventory equal to 30% of the next month’s sales. At the end of March, the company had 600 finished units on hand. Prepare a production budget for each of the months of April, May, and June.

Production Budget   April   3970    May      5530  June        5740 units  

Explanation:

Tyler Co.

Production Budget

For the months of April, May, and June.

Particulars                        April,            May,           June      July

Sales                                 3100          4900            7000      2800(given)

+ Desired Ending Inv.      1470           2100            840

Less Beginning Inv.         600            1470            2100                

Production Budget           3970          5530          5740          

The Production budget is calculated by adding sales to the desired ending inventory and subtracting the beginning inventory from it. Each month's ending inventory is next month's beginning inventory.

The Ending Inventory is calculated by taking 30% of the next months' sales.

Ending Inventory  for April =  4900*30%=1470

Ending Inventory  for May =  7000*30%=2100

Ending Inventory  for April =  2800*30%=840

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