Down Under Products’ sales budget for the next four months is as follows:
  	Unit Sales
April 	84,000
May 	90,000
June 	124,000
July 	97,000

The company wants its ending inventory levels to equal 20% of the following month’s unit sales. The inventory at the end of March was 16,800 units.
Required:

Prepare a production budget, by month and in total, for the second quarter.

To prepare a production budget, we need to calculate the required production for each month. The formula to determine the required production is:

\[
\text{Required Production} = \text{Budgeted Sales} + \text{Desired Ending Inventory} - \text{Beginning Inventory}
\]

The company wants to keep the ending inventory at 20% of the following month's sales, and we are given the following information:

- **April Sales** = 84,000 units
- **May Sales** = 90,000 units
- **June Sales** = 124,000 units
- **July Sales** = 97,000 units
- **Ending Inventory in March** = 16,800 units (this is the beginning inventory for April)

Now, let's break this down month by month.

### April:
- **Budgeted Sales**: 84,000 units
- **Desired Ending Inventory**: 20% of May's sales = \(0.20 \times 90,000 = 18,000\) units
- **Beginning Inventory**: 16,800 units (ending inventory from March)

\[
\text{Required Production for April} = 84,000 + 18,000 - 16,800 = 85,200 \, \text{units}
\]

### May:
- **Budgeted Sales**: 90,000 units
- **Desired Ending Inventory**: 20% of June's sales = \(0.20 \times 124,000 = 24,800\) units
- **Beginning Inventory**: 18,000 units (ending inventory from April)

\[
\text{Required Production for May} = 90,000 + 24,800 - 18,000 = 96,800 \, \text{units}
\]

### June:
- **Budgeted Sales**: 124,000 units
- **Desired Ending Inventory**: 20% of July's sales = \(0.20 \times 97,000 = 19,400\) units
- **Beginning Inventory**: 24,800 units (ending inventory from May)

\[
\text{Required Production for June} = 124,000 + 19,400 - 24,800 = 118,600 \, \text{units}
\]

### July (for information purposes):
We don't need to compute production for July directly, but July’s sales and ending inventory affect June's budget.

### Total for the Second Quarter:
To get the total production for the second quarter, we sum the production for April, May, and June:

\[
\text{Total Production for Q2} = 85,200 + 96,800 + 118,600 = 300,600 \, \text{units}
\]

### Production Budget Summary:
| Month  | Sales (Units) | Desired Ending Inventory | Beginning Inventory | Required Production |
|--------|---------------|--------------------------|---------------------|---------------------|
| April  | 84,000        | 18,000                   | 16,800              | 85,200              |
| May    | 90,000        | 24,800                   | 18,000              | 96,800              |
| June   | 124,000       | 19,400                   | 24,800              | 118,600             |
| **Total (Q2)** |       |                          |                     | **300,600**         |

This table shows the production needed for each month and in total for the second quarter.

Would you like more details or have any questions?  
Here are 5 related questions:

1. How do ending inventories impact cash flow and production decisions?
2. What happens if sales forecasts are inaccurate? How does that affect production?
3. What strategies could a company use to optimize its inventory management?
4. How does the desired ending inventory percentage influence production planning?
5. Why is it important to maintain buffer inventory levels?

**Tip**: Always review sales forecasts regularly to ensure production levels align with actual demand, minimizing overproduction and storage costs.

Down Under Products’ sales budget for the next four months is as follows: Unit Sales April 84,000 May 90,000 June 124,000 July 97,000 The company wants its ending inventory levels to equal 20% of the following month’s unit sales. The inventory at the end of March was 16,800 units. Required: Prepare a production budget, by month and in total, for the second quarter.

Learn how to prepare a production budget for Down Under Products with sales forecasts for April, May, June, and July. This problem covers key accounting concepts like budgeting, inventory management, and production planning, with a detailed step-by-step solution. Suitable for college-level accounting students.

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