Budgeting

Sales and Production Budgets

Sales budget

Example

Production budget

Production ≠ sales because inventory levels change between periods.

Production required = Sales units + Closing inventory − Opening inventory

Variable production plan — production varies month to month to match sales exactly (closing inventory held constant).

Even production plan — production is fixed each month; inventory rises and falls around sales.

Example (variable production):

Key point

The production budget feeds directly into the purchases budget (materials needed) and the labour budget (hours required).