Blue Wave Co. predicts the following unit sales for the coming four months: September, 3, 600 units; October, 4, 900 units; November, 6,000 units; and December, 8, 400 units. The company's policy is to maintain finished goods inventory equal to 60% of the next month's sales. At the end of August, the company had 2, 700 finished units on hand.

Prepare a production budget for each of the months of September, October, and November.

See explanation section

Explanation:

                                 Blue Wave Corporation

                                     Production Budget

         For the months of September, October, and November

                               September          October              November

Budgeted sales        3,600                  4,900                   6,000

Add: Ending finished

goods Inventory       2,940                  3,600                   5,040

Inventory available

for sale                     6,540                  8,500                  11,040

Less: Beginning finished

goods Inventory     (2,700)                 (2,940)                 (3,600)

Budgeted finished

goods production   3,840                  5,560                   7,440

Total production = 16,840 units

Note: Current months ending finished goods is the next months beginning finished goods.

Ending Inventory for September = 4,900 × 60% = 2,940

October = 6,000 × 60% = 3,600

November = 8,400 × 60% = 5,040

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