Budgeting Basics and Beyond

6.4. Production Budget

After sales are budgeted, the production budget can be determined. The production budget is a statement of the output by product and is generally expressed in units. It should take into account the sales budget, plant capacity, whether stocks are to be increased or decreased, and outside purchases. The number of units expected to be manufactured to meet budgeted sales and inventory requirements is set forth in the production budget.

Expected production volume = Planning sales + Desired ending inventory − Begining inventory

The production budget is illustrated in Schedule 2.

Schedule 2

Table 6.2. THE PUTNAM COMPANY Sales Budget For the Year Ended December 31, 20B

Quarter
	1	2	3	4	Year as a Whole
Planned Sales (SChedule 1)	1,000	1,800	2,000	1,200	6,000
Desired ending inventory[]	180	200	120	300	300
Total needs	1,180	2,000	2,120	1,500	6,300
Less: Beginning inventory	200[]	180[]	200	120	200
Units to be produced	980	1,820	1,920	1,380	6,100
[]
[]
[]

^[] 10 percent of the next quarter's sales (for example, 180 = 10% × 1,800).

^[] Given.

^[] The same as the previous quarter's ending inventory.