Question

qs 20-7 (algo) manufacturing: production budget lo p1

atlantic surf manufactures surfboards. the companys budgeted sales units for the next three months is shown below. company policy is to maintain finished goods inventory equal (in units) to 40% of the next months unit sales. as of june 30, the company has 1,600 finished surfboards in inventory.

budgeted sales units:
july: 4,000
august: 6,000
september: 3,500

prepare the production budget for the months of july and august.

atlantic surf
production budget
item | july | august
desired ending inventory units
total required units
units to be produced

Explanation:

Identify given values

Using the Budgeted Sales Units knowledge point:

• July sales: \(4,000\) units
• August sales: \(6,000\) units
• September sales: \(3,500\) units
• June 30 ending inventory (July beginning inventory): \(1,600\) units

Determine ending inventory

Using the Ending Inventory Policy knowledge point:

• July ending inventory: \(40\% \times 6,000 = 2,400\) units
• August ending inventory: \(40\% \times 3,500 = 1,400\) units

Calculate total required units

Using the Production Budget knowledge point:

• July total required: \(4,000 + 2,400 = 6,400\) units
• August total required: \(6,000 + 1,400 = 7,400\) units

Calculate units to produce

Using the Production Budget knowledge point:

• July beginning inventory: \(1,600\) units
• July production: \(6,400 - 1,600 = 4,800\) units
• August beginning inventory (July ending): \(2,400\) units
• August production: \(7,400 - 2,400 = 5,000\) units

Answer:

Item	July	August
Desired ending inventory units	2,400	1,400
Total required units	6,400	7,400
Beginning finished goods inventory units	1,600	2,400
Units to be produced	4,800	5,000