Coronado manufactures competition stunt kites. In November, Jerry Box prepared the following production budget for the first quarter of the coming year. Desired ending inventory is based on the following month's budgeted sales. January February March Quarter Budgeted unit Sales 24,100 39,300 32,200 95,600 Budgeted ending inventory 7,860 6,440 2,870 2,870 Total units required 31,960 45,740 35,070 98,470 Beginning inventory 4,820 7,860 6,440 4,820 Budgeted production 27,140 37,880 28,630 93,650 Following higher-than-expected sales in December, Jerry conducted an inventory count on January 2 and discovered that the company had only 2,260 completed kites on hand. He decided that given the brisk sales in December, the company should increase its desired ending inventory level from 20 to 25 percent of the next month's sales volume. Prepare a new production budget for the first quarter. (Round answers to 0 decimal places, e.g. 5,275.) January February March Quarter

Budgeted unit Sales 24,100 39,300 32,200 95,600 Budgeted ending inventory 9,825 8,050 3,588 3,588 Total units required 33,925 47,350 35,788 99,188 Beginning inventory 6,025 9,825 8,050 6,025 Budgeted production 27,900 37,525 27,738 93,163

Explanation:

a) Prepared Production Budget:

January February March Quarter

Budgeted unit Sales 24,100 39,300 32,200 95,600 Budgeted ending inventory 7,860 6,440 2,870 2,870 Total units required 31,960 45,740 35,070 98,470 Beginning inventory 4,820 7,860 6,440 4,820 Budgeted production 27,140 37,880 28,630 93,650

b) Budgeted Ending Inventory changed from 20% to 25% of the next month's sales. The April sales was estimated using the ending inventory of March for the prepared budget. This is calculated as follows:

Sales for April = 2,870/20% = 14,350 units

Therefore, the March ending inventory for the new production budget is equal to 25% of 14,350 = 3,588 units.

c) Production budget is an estimate of the units to be produced based on the sales forecast, desired ending inventory (safety stock to cover for unexpected increases in sales) and the period's beginning inventory level.