Production budget
In one sentenceSets the number of units that must be produced to cover expected sales and the inventory required at the end of the period, after deducting what is available at its start.
Simply put
The production budget is built on the sales budget: you do not produce only what you will sell. You add what you want left in the warehouse, and subtract what you already have.
The materials, labor and manufacturing overhead budgets are prepared from it, so any error in it repeats in everything after it.
Worked example
A bottled water factory expects to sell 8,000 cartons, wants 1,000 cartons left at the end of the period, and has 1,500 cartons now.
Expected sales8,000 cartons
+ Required closing inventory1,000 cartons
− Opening inventory1,500 cartons
Required production = 8,000 + 1,000 − 1,5007,500 cartons
Formula: Expected sales + required closing inventory − opening inventory