Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher

Exercise 19

Estimate Production Levels

Hoffmann Corporation has just made its sales forecasts and its marketing department estimates that the company will sell 72,000 units during the coming year. In the past, management has maintained inventories of finished goods at approximately one month’s sales. The inventory at the start of the budget period is 3,900 units. Sales occur evenly throughout the year.

Required

Estimate the production level required for the coming year to meet these objectives.

Step 1 of 2

Production budget refers to the estimation of manufacturing the units according to the sales forecast of the product. The production budget is prepared on monthly or quarterly basis. The number of units to be produced is based on sales forecast and units kept as finished stock which is maintained for meeting the unexpected increase in demand.