PRODUCTION BUDGET

Example: - A Company forecasts sales in units for January to May as follows:

January February March April May
Units 2,000 2,200 2,500 2,800 3,000

A Company would like to maintain 100 units in its inventory at the end of each month.
 Beginning inventory at the start of January amounts to 50 units.
 How many units should A Company produce in order to fulfill the expected sales of the
company?
MONTH
JANUARY FEBRUARY MARCH APRIL MAY TOTAL
Projected Sales
Target level of
ending
inventories
Total
Less: Beginning
Inventory
Required
Production

SALES BUDGET

Continuing the previous example, assume selling is PHp100/unit.

Sales for each month are expected to be collected as follows:
- Month of sales: 20%
- A month after sales: 50%
- 2 months after sales: 30%
How much is total receipts from sales

MONTH
JANUARY FEBRUARY MARCH APRIL MAY TOTAL
Unit
Sales in Peso
Collection from
current month
sales
Collection from
previous month
sales
Collection from
two months
prior sales
Total
Collection
from Sales

PRODUCTION BUDGET
- Assume the cost per unit is Php 50.
- All purchases this month are paid the following month. How much is total cash disbursements
for purchases

MONTH
JANUARY FEBRUARY MARCH APRIL MAY TOTAL
Required
Production
Cost in Peso
Payment from
the current
month sales
Payment from
the previous
month sales
Payment from
two months
prior sales
Total
payments for
purchases

OPERATIONS BUDGET

The following expense items will be paid based on the following periods:
- Rent payment: Rent of Php5,000 will be paid each month.
- Wages and salaries: Fixed salaries for the year are Php96,000, or Php8,000 per month. Wages
are estimated as 10% of monthly sales.
- Tax payments: Taxes of Php25,000 must be paid in April
- Fixed-asset outlays: New machinery costing Php130,000 will be purchased and paid for in
April.
- Interest payments: An interest payment of Php10,000 is due on May.
- Cash dividend payments: Cash dividends of Php20,000 will be paid on January.
- Principal payments (loans): A Php20,000 principal payment is due in February

MONTH
JANUARY FEBRUARY MARCH APRIL MAY TOTAL
Total payment
for the
purchases
Rent payments
Wages
Salaries
Tax Payment
Fixed Asset
Outlay
Interest
Payment
Cash Dividend
Principal
payment
Total Cash
Disbursements
CASH BUDGET
-Moreover, A Company has a beginning cash balance of Php80,000 and would like to maintain
an ending cash balance of Php100,000 per month. Prepare A Company Cash Budget for January
to May.
- Prepare a cash budget

JANUARY FEBRUARY MARCH APRIL MAY TOTAL

Cash Receipts
Less: Cash
Disbursements
Net Cash Flow
Add: Beginning
Cash
Ending Cash
Balance
Less: Minimum
Cash Balance
Cumulative
excess cash
balance
(Cumulative
required
financing)