Page 79 - Budgeting for Managers

Budgeting for Managers
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assembly lines. When we add them all together, we’ll
have the departmental budget. (Budgeting a project is
discussed in Chapter 5. Putting together parts of a budg-
et is covered in Chapter 7.)
• If sales are considerably lower than what we can produce,
we have several options. We can cut production and
make money with the excess plant capacity some other
way. We might make another product. We might lease the
space and equipment to another company. We could also
manufacture at capacity and cut our prices to sell more or
plan to reduce prices later in the year to reduce excess
inventory.
• If we’re making multiple products and selling more of
some than we can make but less of others than we’re
making, we can convert our assembly lines to produce
more of what will sell and less of what won’t. This is
called changing the product mix.

Table 4-1 shows a budget for expected sales and units to be
produced. We aren’t measuring dollars here; we’re measuring
the number of computers we’ll assemble. It’s October. The mar-
keting department has told us that the company will be able to
sell 50,000 computers next year and they want to know if we
can make enough and how much it will cost to make them.
Let’s show them what we know!
First, we go back and ask them how many units they expect

Expected sales (number of computers) 50,000

Add: desired ending inventory of finished goods 10,000

Total Needs 60,000
Less: beginning inventory of finished goods 5,000

Units to be produced 55,000

Figure 4-1. Expected sales and units to be produced