The production budget is used as the basis for creating the direct materials budget, the direct labour budget, and the manufacturing overhead budget
Production budgets are used by manufacturing organizations to determine how many product units will be produced.
Sales projections are used to calculate the production budget. Regarding projected inventory levels, it is modified in accordance with the company's inventory policy.
A manufacturer creates cost budgets for the direct materials, direct labour, and overhead costs needed for manufacturing based on the production budget.
The following formula is used in the production budget to estimate how many units will be produced over a given period:
Budgeted sales units - Opening finished goods stock minus Closing finished goods stock equals the production budget.
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