II. Production Budget

Production = Sales + Closing Stock – Opening Stock

A production budget could be made on a monthly, quarterly, or a yearly basis. A firm can plan its raw material procurement strategy on the basis of this budget.


Example Problems:
1. The sales of a concern for the next year is estimated at 50,000 units. Each unit of the product requires 2 units of Material ‘A’ and 3 units of Material ‘B’. The estimated opening balances at the commencement of the next year are:
Finished Product: 10,000 units
Raw Material ‘A’: 12,000 units
Raw Material ‘B’: 15,000 units
The desirable closing balances at the end of the next year are:
Finished Product: 14,000 units
Raw Material ‘A’: 13,000 units
Raw Material ‘B’: 16,000 units
Prepare the materials purchase budget for the next year.

Solution: