Senior managers of Blucher Demosthene Limited are preparing a production budget for the month of August 20X6.The sales budget for the month is 8500 units.Sales for September 20X6 are budgeted at 8760 units.The company's policy is to hold closing inventory of finished goods at 75% of the next following month's sales levels. What is the production budget in units for August 20X6?

Question

Quizplus · Accepted Answer

The calculation for the required production budget is as follows:

Step 1: Determine the required closing inventory for August

Closing inventory of finished goods = 75% of September sales = 75% of 8760 = 6570 units

Step 2: Determine the total units required in August

Total units required = Sales budget + Closing inventory - Beginning inventory

Beginning inventory is not given, so it is assumed to be 0.

Total units required = 8500 + 6570 - 0 = 15070 units

Step 3: Determine the production budget

Production budget = Total units required - Beginning inventory

Again, beginning inventory is assumed to be 0.

Production budget = 15070 - 0 = 15070 units

Therefore, the production budget for August 20X6 is 8695 units, which is option B.

Senior Managers of Blucher Demosthene Limited Are Preparing a Production