Alvarez Company produces various parts used in the automotive industry. The sales budget for the next eight months is shown below:

Month December January February March April May June July

Units 25,000 27,000 32,000 28,500 31,400 34,500 36,700 35,000

Management of Alvarez has decided that the quantity of finished-goods inventory at the end of each month in 2018 is to be equal to 25 percent of the next month's budgeted unit sales.

Required:

a. Prepare a production budget for January through June of 2018 (show months only)

Note: this is just the production budget (one table only), no materials budget, no disbursements budget!

b. Why do companies choose to produce units in advance for the coming period? (explain in your own words)

c. Why do companies choose to order materials in advance for the coming period? (explain in your own words)

d. Could innacurate prediction of thebudget table above create problems for the company, how?