nichols cycles manufactures chainless bicycles. on march 31, nichols cycles had 100 bikes in inventory. the company has a policy that the ending inventory in any month must be 10% of the following month’s expected sales. nichols cycles expects to sell the following number of bikes in each of the next four months. requirement prepare a production budget for the 2nd quarter, with a column for each month and for the quarter.

A budget is a calculating plan, generally but not necessarily financial, for a set period of time, typically one year or one month. The Second quarter budget is computed as follows:

The months of the Quarter

April May June

Budgeted Sales ($) 1,000 1,170 1,360

Add - Ending Inventory ($) 117 136 125

Total Requirements ($) 1,117 1,306 1,431
Less: Starting Inventory ($) 100 117 136
Expected Production ($) 1,017 1,189 1,295

Hence the total Expected Production for the quarter is:

1,017 + 1,189 + 1,295

= $3,501.

Note: Desired Ending Inventory is computed by deriving 10% of the following month's expected sales according to the policy given in the question. Also, note that the beginning inventory of 100 bikes is given.

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Full Question:

Nichols cycles manufacture chainless bicycles. on March 31, Nichols cycles had 100 bikes in inventory. The company has a policy that the ending inventory in any month must be 10% of the following month’s expected sales. Nichols cycles expect to sell the following number of bikes in each of the next four months.

April; 1,000 bikes
May; 1,170 bikes
June; 1,360 bikes
July; 1,250 bikes

Requirement prepares a production budget for the 2nd quarter, with a column for each month and for the quarter.