Production budget is usually prepared on the basis of sales budget. But it also takes into account the stock levels desired to be maintained. The estimated output of business firm during a budget period will be forecast in production budget. The production budget determines the level of activity of the produce business and facilities planning of production so as to maximum efficiency. The production budget is prepared by the chief executives of the production department. While preparing the production budget, the factors like estimated sales, availability of raw materials, plant capacity, availability of labour, budgeted stock requirements etc. are carefully considered. After preparation of production budget, this budget is prepared. Production cost budgets show the t of the production determined in the production budget. Cost of production budget is grouped in to material cost budget, labour cost budget and overhead cost budget. Because it break up the cost of each product into three main elements material, labour and overheads. Overheads may be further subdivided in to fixed, variable and semi-fixed overheads, Therefore separate budgets required for each item. +-- From the following particular, you are required to prepare production budget of Mittal Ltd. a manufacturing organization that has three products X, Y and Z. Product Estimated stock at the Estimated stock at the Estimated sales as per beginning of the end of the budget sales budget budget period period 5.000 units 6.400 units 21.600 units Y 4,000 units 3.850 units 19,200 units Z 6,000 units 7.800 units 23,100 units Z (Units) 23,100 7,800 23.050 30.900 Particulars X (Units) Y (Units) Expected sales during the period 21.600 19,200 Add: Closing stock at the end of budget period 6,400 3,850 28,000 Less: Opening stock at the beginning of the budget period 5,000 4.000 Budgeted production 23,000 19,050 Illustration 6. Production cost of a factory for a year is as follows: Direct wages Rs. 40,000 Direct materials Rs. 60,000 6,000 24.900 +42 per hour Production overhead fixed Rs. 20.000 Production overhead variable Rs. 30,000 During the forthcoming year, it is expected that (a) The average rate for direct labour will be far from Rs. 3 per hour to Rs. 2 per (b) Production efficiency will remain unchanged (c) Direct labour hours will increase by 33/% The purchase price per unit of direct materials and of the other materials and services which comprise overheads will remain unchanged. Draw up a budget and a factory overhead rate, the overhead being absorbed on a direct wage basis