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Production Budget

(unit to be produced)
Production Budget
• A firm prepares a production budget after
determining the number of units that it expects
to sell (in sales budget)
• A production budget is a plan for acquiring the
resources needed to carry out the manufacturing
operations to satisfy the expected sales and
maintain the desired ending inventory

2
The Operating Budget
Sales Budget
Selling Admin
Expense Expense
Budget Budget
Production Budget

Direct Materials Budgets* Overhead Budget


Direct Labor Budget

*/ unit of direct materials used ,direct materials purchases, cost of direct materials
• The production budget is a statement of the output by
product and is generally expressed in units
• Also called unit to be produced budget ; a
budget that detailed about unit to be produced by
company in the future.
• Include:
– type / quality of unit
– quantity
– time
– etc
Production Planning
(production budget is just part of it)
• Plan of routing
(raw material to finished good)
• Plan of lay-out
• Plan of schedulling
• Plan of the organization of production
• Plan of product development
• etc
The total number of units to be produced depends
on many factors, amongs them :
– the budgeted sales
– company resources
– the desired units of finished goods ending
inventory
– the units of finished goods beginning inventory
– cost of storage and other policies
– production pattern
Inventory Management
Stability Production Pattern (1)
• Advantages :
– Full employment (minimize/zero social
problem, cost to recruit, etc)
– Machinery and all equiptment used
stable
– Good relation with vendors and financial
institution (in term of financing/credit)
Stability Production Pattern (2)
• Disadvantages :
– Inventory cost (storage cost) increase
– Storaging risk increase (shrink of volume,
quality decrease, etc)
Stability Production Pattern (3)
ABC Enterprise
Production Budget
First Quartal
(in unit)
Keterangan January February March April
Sales 42.000 60.000 84.000 73.000
Inventory
(beginning) 5.000 28.000 33.000 14.000
37.000 32.000 51.000 59.000
Produced 65.000 65.000 65.000 65.000
Inventory 28.000 33.000 14.000 6.000
(ending)
Production Budget
Budgeted sales in units
+ Desired ending inventory of
finished goods
= Total needs
- Beginning inventory of finished
goods
= Units to be produced
Stability Production Pattern (4)
ABC Enterprise
Production Budget
First Quartal
(in unit)
Keterangan January February March April
Sales 42.000 60.000 84.000 73.000
Inventory 28.000 33.000 14.000 6.000
(ending)
70.000 93.000 98.000 79.000
Inventory
(beginning) 5.000 28.000 33.000 14.000
Produced 65.000 65.000 65.000 65.000
Fluctuated Production Pattern as
Fluactuated Sales Pattern
ABC Enterprise
Production Budget
First Quartal
(in unit)
Keterangan January February March April
Sales 42.000 60.000 84.000 73.000
Inventory 10.000 10.000 10.000 10.000
(ending)
52.000 70.000 94.000 83.000
Inventory 10.000 10.000 10.000 10.000
(beginning)
Produced 42.000 60.000 84.000 73.000
Moderately Fluctuated Production Pattern
than Fluactuated Sales Pattern
ABC Enterprise
Production Budget
First Quartal
(in unit)
Keterangan January February March April
Sales 42.000 60.000 84.000 73.000
Inventory 11.000 17.000 5.000 4.000
(ending)
53.000 77.000 94.000 77.000
Inventory 5.000 11.000 17.000 5.000
(beginning)
Produced 48.000 66.000 72.000 72.000
Sales Budget

Kerry Industrial Products Company


Sales Budget
For the First Quarter Ended June 30, 2007
Sale
Forecast April May June Quarter
Sales in units 20,000 25,000 35,000 80,000
Selling price
per unit x $30 x $30 x $30 x $30
Total sales $600,000 $750,000 $1,050,000 $2,400,000
Production Budget

Kerry
Kerry expects
expects to
to have
have 5,000
5,000 units
units on
on hand
hand on
on April
April 11 and
and
wants
wants to
to have
have 30%
30% ofof the
the following
following month’s
month’s projected
projected unit
unit
sales
sales on
on hand
hand at
at the
the end
end of
of each
each month.
month.

Determining the budgeted units of production:

Budgeted Budgeted Desired Beginning


Production
(in units)
= Sales
(in units)
+ Ending
Inventory
– Inventory
(in units)
(in units)
Production Budget

Kerry Industrial Products Company


Production Budget
For the Quarter Ended June30,2007
April May June Quarter
Budgeted sales in units 20,000 25,000 35,000 80,000
Desired ending inventory 7,500 10,500
Units needed 27,500 35,500
Beginning inventory 5,000 7,500 30%
30% of
of June
June’’ss
Budgeted production 22,500 28,000
budgeted
budgeted sales
sales

July sales are budgeted at 40,000 units,