• Estimate Production Levels
Offenbach & Son has just made its sales forecasts and its marketing department estimates that the company will sell 225,000 units during the coming year. In the past, management has maintained inventories of finished goods at approximately one month's sales. The inventory at the start of the budget period is 15,000 units. Sales occur evenly throughout the year.
Required
Estimate the production level required for the coming year to meet these objectives.
• Estimate Sales Levels Using Production Budgets
Sunset Motors, Inc., makes small motors for appliances and other uses. The company develops plans using an annual budgeting cycle. For next year, the production budget is 75,000 units. Inventories are expected to decrease by 4,000 units.
Required
What is the sales budget for the coming year?
• Estimate Production Levels: Capacity Constraints
Waterloo, Ltd. manufactures a component used in aircraft navigation systems. Demand has been strong and the executive staff at Waterloo is planning for next year. Yesterday, you were called into a budgeting meeting where production plans are being reviewed. You learn that the inventory policy at Waterloo is to hold one and one-half months' worth of sales (to avoid issues with transportation disruptions). The sales budget for next year is 660,000 units, spread evenly over the year. Because of an unexpected increase in demand, inventory at the end of this year is expected to be only 30,000 units. The capacity of the plant is 700,000 units annually.
Required
a. What production level next year will be required to meet the targets?
b. Are there any issues that you believe you should bring to the attention of the executive staff?
c. Do you have any suggestions for the resolution of these issues?