I-Fonics Ltd is a mobile phone manufacturing company that manufactures smart phones and feature phones. The management team of I-Fonics Ltd discovered that the company has excessive inventories of feature phones. At the same time, the company is losing sales of smart phones because of insufficient inventories. The management team has realized the need to prepare a budget in the current year and has collated the information below. I-Fonics is preparing a production budget for Year 4 (current year). The management team is planning to maintain an ending inventory equal to 25% of the next quarter’s sales of smart phones and an ending inventory equal to 10% of the next quarter’s sales of feature phones. Budgeted sales (in units) of smart phones and feature phones for all quarters of Year 4 and Quarter 1 of Year 5 are given below:

Required
1. Prepare a production budget for Quarter 1, Quarter 2, Quarter 3 and Quarter 4 for the production of smart phones and feature phones for Year 4. At the beginning of Year 4, the inventory of smart phones is equal to zero and the inventory of feature phones is equal to 1,750 units.
2. Discuss the factors I-Fonics Ltd should consider when determining the budgeted production for the year.
3. Explain the relationship of a production budget with each of the following budgets:
(a) Sales budget
(b) Direct materials budget
(c) Direct labour budget

Transcribed Image Text:

Quarter 1, Year 4 Quarter 2, Year 4 Quarter 3, Year 4 Quarter 4, Year 4 Quarter 1, Year 5 Smart phones 6,000 6,200 6,500 7,000 6,300 Feature phones 2,000 2,500 2,250 2,000 2,700