Enquiry on production budget

[Ambertan]

Hi,

I am suppose to draft out a production budget for the first quarter of 2015.

Given expected sales for Jan, Feb, Mar and April of 1000, 1400, 1600 and 1800 respectively.

I have difficulty in determining the closing stock. The question says "It is a company policy to keep the finished good stock at a constant ratio to the budgeted unit sales of the following month".

What does constant ratio mean and how do I go about doing it?

 

[kirby]

Means - for example - if constant ratio is 10% of following sales, then you need 10% times 1,800 (April's sales) equals 180 in closing stock at end of March and so you need 160 in closing stock at end of Feb and so on.

 

[Ambertan]

Means - for example - if constant ratio is 10% of following sales, then you need 10% times 1,800 (April's sales) equals 180 in closing stock at end of March and so you need 160 in closing stock at end of Feb and so on.

How do you determine the constant ratio to be 10%?

 

[kirby]

I did not. I said "For Example". The problem should have other info telling you what that ratio is. For example, if they give you closing stock in Dec then figure the ratio to January sales and that's the ratio to keep constant.

 

[Ambertan]

I did not. I said "For Example". The problem should have other info telling you what that ratio is. For example, if they give you closing stock in Dec then figure the ratio to January sales and that's the ratio to keep constant.

Apologies. Yes, they did give the closing stock for December to be 1200. So is it correct to use 1200/1000 to be 1.2 which equates to 120% of next months sales?

 

[kirby]

You got it!

 

[Ambertan]

You got it!

Thank you.