• Budget:

Is a planning document Often called a

plan of action, budget can be made
using financial data, non-financial
operating data, or a combination of
both.
 2. Production Budget:

• Is a detailed schedule that identifies the

products that must be produced to meet
budgeted sale and inventory needs. The
production budget should the number of
units of services or goods that are to be
produced during a budget pervious.
Sales in + Ending - Beginning = Units be
units inventory of inventory of produced
finished finished
goods goods
Example:
If the inventory of finished goods &sales units
are as the following:

Beginning Ending Sales units

A 100 200 1000

B 300 100 900

C 300 400 1500

Required: prepare the production
budget

Solution:
Product Sales Ending Beginning Quantity of
units production

A 1000 200 100 1100

B 900 100 300 700

C 1500 400 300 1600

 Exercise (1):
This information related with Sales and Inventory
(finished goods) that Collected from Nile Co.
producing 2 products "A" and "B" for the year 2003.
"A“ "B“
Estimated sales 1000 units 8000 units
Sales price/unit 140 L.E. 130 L.E.
Inventory 31/12/2002, 1500 700 units
Inventory 31/12/2003, 1200 900 units
Required:
• Prepare production Budget.
• Prepare Sales Budget
Exercise (2):
ABC Company produces a sports drink. The
company expects sales to be 15.600 in April.
There are 1.600 bottles on hand at the end of
March. The company desires to maintain
monthly ending inventory equal to 10% of next
month’s expected sales. Expected sales of May
is 18000 units.
Required:
Prepare the budget of production for April.
 Production budget
Jan Feb Mar
Beginning inventory 5000
Budgeted sales 7000 8000 9000
Ending inventory 1000
Products needed 5000 4000
 Material budget

• Material budget =
quantity of production x material needed per unit
= total quantity of material needed.
• It shows the number of units and the cost
material to be purchased and used during
a budget period.
• Materials purchase / usage budget is a
detailed plan that identifies the number
and timing of raw materials and parts to
be purchased to meet production
demands.
Raw + Ending - Beginning = Raw
materials inventory inventory materials
required for of raw of raw to be
production materials materials purchased
Example:
If you know that Z Company used
materials as follows:
Materials Quantity of X Y Z
Products production
A 1100 100 0 200

B 700 200 100 0

C 1600 0 500 400

• Required:
Prepare the direct material budget
 Solution:
Quantity per unit Total quantity of material

Quantity of
Product production X Y Z X Y Z
A 1100
100 - 200 110000 - 220000
B 700
200 100 - 140000 70000 -
C 1600
- 500 400 - 800000 640000
Total
250000 870000 860000
 4. Purchase budget:

• Example:
from previous example:
If you know that the inventory of raw
materials is as follows
 Items X Y Z

Total quantity of
material 250,000 870,000 860,000

Beginning 20,000 50,000 30,000

Ending 50,000 30,000 40,000

Cost unit of raw

material 8 L.E. 10 L.E. 12 L.E.
• Required:
prepare purchase budget.
Solution:

Total Quantity Cost Purchased

Material quantity End.inv. Beg.inv purchased of unit value
X 250000 50000 20000 280000 8 2240000

Y 870000 30000 50000 850000 10 8500000

Z 860000 40000 30000 870000 12 1044000

Total 11784000
Exercise (3):
ABC chemical company has estimated that production for the next
five quarters will be:
Quantity of production
Quarter 1.2003 46.000 Units
Quarter 2.2003 42.000 Units
Quarter 3.2003 50.000 Units
Quarter 4.2003 39.000 Units
Quarter 1.2004 48.000 Units

Finished units of production require 4 kgm of raw material per unit. The
raw material cost is 4 L.E. per Kgm. There are 45.000 kgm of raw
materials on hand at the beginning of quarter 1.2003. The company
desires to have 30% of quarter material requirements on hand at the
end of each quarter.
• Required:
Prepare quarterly direct materials and purchase budget for ABC Company.
Solution:
 Material Budget

Quantity of
Raw
material Total quantity
period Quantity of production per unit of material
Quarter 1.2003 46.000 4 184000
Quarter 2.2003 42.000 4 168000

Quarter 3.2003 50.000 4 200000

Quarter 4.2003 39.000 4 156000

Quarter 1.2004 48.000 4 192000

 Purchased budget
Total
quantity Quantity
of purchase Cost of Purchased
period material End.inv. Beg.inv d unit value
Quarter 1.2003 184,000 55,200 45.000 194,200 4 776,800
Quarter 2.2003 168,000 50,400 55,200 163,200 4 652,800

Quarter 3.2003 200,000 60,000 50,400 209,600 4 838,400

Quarter 4.2003 156,000 46,800 60,000 142,800 4 571,200
Quarter 1.2004 192,000 57,600 46,800 202,800 4 811,200