Question

qs 20-6 (algo) manufacturing: production budget lo p1

champ incorporated budgets the following sales in units for the coming two months. each months ending inventory of finished units should be 50% of the next months sales. the april 30 finished goods inventory is 135 units.

budgeted sales units:
may: 270
june: 260

prepare the production budget for may.

champ incorporated
production budget
may

desired ending inventory units
total required units
units to produce

Explanation:

Identify the production budget formula

To prepare a production budget, we calculate the required units to produce using the standard formula:

$$ \text{Units to produce} = \text{Budgeted sales units} + \text{Desired ending inventory units} - \text{Beginning inventory units} $$

Calculate desired ending inventory for May

The problem states that each month's ending inventory of finished units should be \(50\%\) of the next month's sales.
The next month's sales (June) are \(260\) units.

$$ \text{Desired ending inventory for May} = 260 \times 50\% = 130 \text{ units} $$

Calculate total required units for May

We add the budgeted sales for May to the desired ending inventory for May:

$$ \text{Budgeted sales for May} = 270 \text{ units} $$

$$ \text{Total required units} = 270 + 130 = 400 \text{ units} $$

Determine beginning inventory for May

The beginning inventory for May is equal to the ending inventory of the previous month (April 30).
The problem states that the April 30 finished goods inventory is \(135\) units.

$$ \text{Beginning inventory for May} = 135 \text{ units} $$

Calculate units to produce for May

Subtract the beginning inventory from the total required units:

$$ \text{Units to produce} = 400 - 135 = 265 \text{ units} $$

Answer:

CHAMP INCORPORATED <br> Production Budget <br> May
Desired ending inventory units	130
Total required units	400
Beginning inventory units	135
Units to produce	265