Question

Why is the beginning inventory subtracted at the end to find the required production/purchases for a production budget in units?

Answer 1

Opening inventory subtracted while purchasing or production because the amount inventory purchased/ production in the previous period but now we are doing budget or projections for the current periods. If we want to find the current period purchases/ production we have to subtract form the budgeted units

The production budget calculates the number of units of products that must be manufactured, and is derived from a combination of the sales forecast and the planned amount of finished goods inventory to have on hand. The production budget is typically prepared for a "push" manufacturing system, as is used in a material requirements planning environment.

The production budget is typically presented in either a monthly or quarterly format. The basic calculation used by the production budget is:

+ Forecasted unit sales

+ Planned finished goods ending inventory balance

= Total production required

- Beginning finished goods inventory

= Products to be manufactured