Explain production budget.
A production budget may be made by production manager in consultation along with his assistants after obtaining the sales Budget. A production budget demonstrates the quantity of products to be manufactured.
This is based upon:
(i) Sales budget,
(ii) Factory capacity (storage and Production),
(iii) Budgeted stock needs,
(iv) Economic lot size
(v) Accessibility of raw material and labour.
A production budget gets the cost of producing the estimation volume of saleable products. A production plan is computed in terms of the number of units to be produced in each era, as a month. As far as possible, the production must be planned at a relatively even rate, even if the sales budget indicates a high seasonal sales forecast.