Osborne Foods Production Budget Analysis

Osborne Foods produces specialty soup sold in jars. The projected sales in dollars and jars for Osborne anticipates selling 220,000 jars with total sales revenue of $266,000 in the first each quarter of the upcoming year are as follows:

Production Budget Preparation

Osborne has a policy that the ending inventory of jars must be 20% of the following quarter's sales. Prepare a production budget for the year that shows the number of jars to be produced each quarter and for the year in total. Prepare the production budget by first calculating the total units needed, then calculate the units to produce.

Sales Forecast

a. Sales in April were $42,000. You forecast that monthly sales will increase 8% in May and 4% in June.

b. Omaha Office Supply maintains inventory of $8,000 plus 25% of the sales revenues budgeted for the following month. Monthly purchases average 50% of sales revenue in that same month. Actual inventory on April 30 is $19,340. Sales budgeted for July are $75,000.

c. Monthly salaries amount to $4,000. Sales commissions equal 11% of sales for that month. Combine salaries and commissions into a single figure.

Budgeted Income Statement

The budget committee of Omaha Office Supply has assembled the following data. As the business manager, you must prepare the budgeted income statements for May and Ju

Production Budget for Osborne Foods

Quarter | Sales (jars) | Ending Inventory (20%) | Total Needed (jars) | Production (jars)

1 | 220,000 | 44,000 | 264,000 | 264,000

2 | 240,000 | 48,000 | 288,000 | 280,000

3 | 260,000 | 52,000 | 312,000 | 300,000

4 | 280,000 | 56,000 | 336,000 | 330,000

Year | 1,000,000 | 200,000 | 1,200,000 | 1,200,000

Sales (jars): This is the number of jars that Osborne expects to sell in each quarter.

Ending Inventory (20%): This is the amount of inventory that Osborne wants to have at the end of each quarter. It is calculated by taking 20% of the sales in the next quarter.

Total Needed (jars): This is the total number of jars that Osborne needs to produce in each quarter to meet sales demand and maintain the desired ending inventory.

Production (jars): This is the actual number of jars that Osborne plans to produce in each quarter.

As you can see, Osborne plans to produce 1,200,000 jars of soup for the entire year. This is equal to the total number of jars needed, minus the ending inventory for the first quarter.