The sales forecast for ceramic pottery handcrafted by Fergie Industries follows. Beginning inventory for the year is expected to be 1,000 ceramic bowls, and the production manager prefers to maintain an ending inventory of 10% of the next quarter’s sales.

Quarter..............................Number of Ceramic Bowls

First................................................2,000

Second...........................................3,000

Third...............................................4,500

Fourth.............................................6,750

Required:

A. Prepare a production budget by quarter and for the year in total. Assume that the sales forecast for the first quarter of the following year is expected to be 10% higher than the first quarter of this year.

B. If actual first quarter sales were 5% higher than forecasted, should the production manager be concerned? Evaluate ending inventory requirements.

C. Prepare an adjusted production budget for the remaining three quarters based on the actual sales. (Hint: The original forecast is based on sales increasing by 50% each quarter.)