How to prepare a Production Budget.

• For the production manager to know how much to produce during the budgeted period, obviously he/she needs to know the sales budgeted. Only then can he consider the production capacity and also to take account the planned closing stocks of finished goods.
• Once the volume of production is ascertained, he has to prepare a statement of expected manufacturing costs. Costs should be classifie into fixed and variable costs to allow for flexible budgeting.
• In the initial stages,the production budget is in terms of quantity.Later the quantity is expressed in terms of costs.
• Production budgets are based on sales, machine utilization,purchasng, labor and overhead budgets. Hence it is a summary of all those budgets
• Production budgets may be analyzed by products, producton departments and period
• The key factors must be determined before adopting a plan.
• The size and nature of the business will influence the preparation of production budgets.

Level of production is computed as follows:

• The level of production in any period is determined as follows:

Planned volume of units in stock at the end of the period
Plus
Planned volume of sales
Less
Volume of units in stock at the start of the period
=Planned level of production for the period