Down Under Products’ sales budget for the next four months is as follows:Unit SalesApril 66,000May 80,000June 106,000July 88,000The company wants its ending inventory levels to equal 20% of the following month’s unit sales. The inventory at the end of March was 13,200 units.Required:Prepare a production budget, by month and in total, for the second quarter.

To prepare a production budget, we need to determine the number of units that need to be produced each month to meet the sales demand and maintain the desired ending inventory levels. Here's the process:

1. **Calculate the desired ending inventory for each month:**
   - April: 20% of May's sales
   - May: 20% of June's sales
   - June: 20% of July's sales
   - July: Not needed for the production budget of the second quarter

2. **Determine the total units required each month:**
   - Total units required = Sales + Desired ending inventory

3. **Calculate the beginning inventory for each month:**
   - Beginning inventory for April is given (13,200 units at the end of March).
   - Beginning inventory for May is the ending inventory of April.
   - Beginning inventory for June is the ending inventory of May.

4. **Determine the production required each month:**
   - Production required = Total units required - Beginning inventory

### Step-by-Step Calculations

#### 1. Desired Ending Inventory:
- **April:** 20% of May's sales = 0.20 * 80,000 = 16,000 units
- **May:** 20% of June's sales = 0.20 * 106,000 = 21,200 units
- **June:** 20% of July's sales = 0.20 * 88,000 = 17,600 units

#### 2. Total Units Required:
- **April:** Sales + Desired ending inventory = 66,000 + 16,000 = 82,000 units
- **May:** Sales + Desired ending inventory = 80,000 + 21,200 = 101,200 units
- **June:** Sales + Desired ending inventory = 106,000 + 17,600 = 123,600 units

#### 3. Beginning Inventory:
- **April:** 13,200 units (given)
- **May:** Ending inventory of April = 16,000 units
- **June:** Ending inventory of May = 21,200 units

#### 4. Production Required:
- **April:** Total units required - Beginning inventory = 82,000 - 13,200 = 68,800 units
- **May:** Total units required - Beginning inventory = 101,200 - 16,000 = 85,200 units
- **June:** Total units required - Beginning inventory = 123,600 - 21,200 = 102,400 units

### Production Budget Summary

| Month | Sales | Desired Ending Inventory | Total Units Required | Beginning Inventory | Production Required |
|-------|-------|--------------------------|----------------------|---------------------|---------------------|
| April | 66,000 | 16,000                   | 82,000               | 13,200              | 68,800              |
| May   | 80,000 | 21,200                   | 101,200              | 16,000              | 85,200              |
| June  | 106,000 | 17,600                  | 123,600              | 21,200              | 102,400             |

#### Total for the Second Quarter:
- **Total Production Required** = 68,800 + 85,200 + 102,400 = 256,400 units

Would you like any details or have any questions about the calculations?

### Relative Questions:
1. How do changes in sales projections affect the production budget?
2. What strategies can companies use to manage inventory levels effectively?
3. How does ending inventory impact cash flow?
4. What are the implications of overestimating sales on production planning?
5. How can a company adjust its production plan if sales exceed expectations?
6. What role does supply chain management play in production budgeting?
7. How do seasonal sales variations influence production planning?
8. What are the risks associated with maintaining too low or too high inventory levels?

**Tip:** Regularly review and update your production budget to reflect actual sales data and market conditions to ensure accuracy and efficiency in production planning.

Learn how to prepare a production budget for Down Under Products' second quarter, including detailed calculations for unit sales, desired ending inventory levels, and production requirements. This problem covers key concepts in production budgeting and inventory management.

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