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Explain what is a production budget? Why is it prepared?


Production budget is a forecast of production for the budget period. It is prepared from two angles: In terms of quantity and in terms of money. Following budgets are prepared under the production budget:

-Material Budget to estimate the material cost

-Direct Labour Cost Budget to estimate the labour cost which are required to product the quantity as specified in the production budget.

-Overhead Budget to estimate production overheads.

Production budget is prepared after taking various budgets into consideration. For a proper estimation of various costs associated with the production process makes it important to prepare production budget for the period in which production will take place.

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