Production budget is a schedule showing planned production in units which must be made by a manufacturer during a specific period to meet the expected demand for sales and the planned finished goods inventory. The required production is determined by subtracting the beginning finished goods inventory from the sum of expected sales and planned ending inventory of the period. Thus:
Planned Produciton in Units
= Expected Sales in Units
+ Planned Ending Inventory in Units
− Begining Inventory in Units
Production budget is prepared after sales budget since it needs the expected sales units figure which is provided by the sales budget. It is important to note that only a manufacturing business needs to prepare the production budget.
Format and Example
The following example illustrates the production budget format. The expected sales units are obtained from the sales budget of Company A. The planned ending units of 1st, 2nd and 3rd period are the beginning units in 2nd, 3rd and 4th period respectively.
|For the Year Ending December 30, 2010|
|Budgeted Sales Units||1,320||954||1,103||1,766||5,143|
|+ Planned Ending Units||210||168||213||225||225|
|− Beginning Units||−196||−210||−168||−213||−196|
|Planned Production in Units||1,334||912||1,148||1,778||5,172|