Production budget Adelaide's first important step in budgeting was to develop a production budget and a raw
Question:
Production budget
Adelaide's first important step in budgeting was to develop a production budget and a raw materials schedule for the first quarter of the coming year. Actual sales for the prior October and November were available, and reasonable estimates of sales for December and the first four months of the coming year were made.
Actual Sales Units Expected Sales Units
October $ December $
November $ January of the coming year $
February of the coming year $
March of the coming year $
April of the coming year $
Since there was no established policy on production scheduling, inventory planning, or raw materials inventory, it was necessary to establish one. Crofton, Trafalgar, and Adelaide agreed that a policy based on experience would have to wait until some data were collected over the next to months. In an effort to get things going," they settled on a twopart operational statement of policy:
a Production in any month should be scheduled so that an ending inventory of Great Heaths will equal onehalf of the next month's expected sales.
b Purchase of raw material should be made so that on average there is enough raw material on hand to produce Great Heaths. Thus, no endofmonth inventory should have fewer than units of raw materials.
Prepare a production schedule, schedule of raw material use, and a schedule of raw materials purchases for January, February, and March.
Managerial Accounting
ISBN: 9780073526706
12th Edition
Authors: Ray H. Garrison, Eric W. Noreen, Peter C. Brewer