Peishan owns a business manufacturing drinking mugs. The business operates over 13 four-week periods with five working days in each week. Previously, Peishan had fixed production at 18 000 mugs per period, regardless of the level of sales. This year Peishan has decided to introduce a system of budgetary control. 

The sales for the first four periods of this year are expected to be as follows.

Sales are expected to occur evenly throughout each period. 

Inventory at the start of period 1 is 2900 mugs. 

Inventory is now to be maintained at a level sufficient to cover four days of the next period's expected sales. 

Each mug costs $0.60 to make and is sold for $1.45. 

a. Prepare the production budget in units for each of the periods 1-3.

b. Prepare comparative budgeted trading sections of the income statement for Peishan for periods 1-3, using: 

i. The production budget prepared in answer to a. 

ii. A fixed production level of 18 000 mugs per period 

Assume that inventory is valued at cost. 

c. Evian two benefits for Peishan's business of introducing a production budget.

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Period 1 Period 2 Period 3 Period 4 Mugs (units) 14 500 15 200 16 100 17 400