Production Budget

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Production Budget:
Learning Objective of the article: 1. Define and explain production budget. 2. Prepare a production budget.
Definition and Explanation of Production Budget:
The production budget is prepared after the sales budget. The production budget lists the number of units that must be produced during each budget period to meet sales needs and to provide for the desired ending inventory. Production needs can be determined as follows.
| |Budgeted sales in units------------------- |XXXX |
| |Add desired ending inventory------------ |XXXX |
| |Total need--------------------------------------- |-------- |
| |less beginning inventory-------------------- |XXXX |
| |Required production-------------------------- |XXXX |
| | |-------- |
| | |XXXX |
| | |===== |

Production requirements for a period are influenced by the desired level of ending inventory. Inventories should be carefully planned. Excessive inventories tie up funds and create storage problems. Insufficient inventories can lead to lost sales or crash production efforts in the following period.
Example of a Production Budget:
Following is the production budget of Hampton Freeze Inc.