A small textile firm expects to sell 8,000 units in the next quarter. The selling price per unit is Rs.150 and the variable cost per unit is Rs.90. Fixed manufacturing overheads for the quarter are Rs.180,000. Using these figures, prepare a production budget (in rupees) for the quarter and explain why such a budget is an essential part of the planning process.

Step-by-step solution

1. Calculate total variable cost: $8,000\times \text{Rs. }90=\text{Rs. }720,000$ because variable cost depends on the number of units produced.
2. Add fixed manufacturing overheads: $\text{Rs. }720,000+\text{Rs. }180,000=\text{Rs. }900,000$ to obtain the total production cost.
3. State the production budget: the firm should allocate $\text{Rs. }900,000$ for production in the quarter.
4. Explain that a production budget translates sales expectations into concrete cost estimates, guiding resource allocation and ensuring the firm can meet its sales target.

Concept tested: Budgeting as planning

Published 28 September 2026 · How this solution was prepared and checked