Like the sales budget, the production budget is built up in terms of quantities and money. The quantities are entered at the beginning and, when the remainder of the budget have been built up and the cost of production calculated, the costs are entered to compile a production cost budget. In preparing the production budget, consideration should be given to the following:
(1) Principal budget factor, e.g., if sales be the budget factor then it should be the sales budget; otherwise other budgets.
(2) Production planning and determination of optimum factory capacity.
(3) The opening stocks, and stocks required to be carried at the end of the period.
(4) The policy of the management regarding manufacture or purchase of components.
The production budget may be classified under the following heads:
(b) Manufacturing department
(c) Months, quarters, etc.
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