Asked by ALEXANDER STEPHAN MACHHOLZ on May 16, 2024
Verified
Douglas Corporation plans to sell 24,000 units of Product A during July and 30,000 units during August. Sales of Product A during June were 25,000 units. Past experience has shown that end-of-month inventory should equal 3,000 units plus 30% of the next month's sales. On June 30 this requirement was met. Based on these data, how many units of Product A must be produced during the month of July?
A) 28,800
B) 22,200
C) 24,000
D) 25,800
End-Of-Month Inventory
The total value of all inventory held by a company at the end of the month, including raw materials, work in progress, and finished goods.
Next Month's Sales
An estimate or projection of the revenue a company expects to generate from the sale of goods or services in the upcoming month.
- Ascertain knowledge relating to the concept and formulation of a variety of budgets, such as sales, manufacturing overhead, cash, direct materials, and production budgets.
- Harness budgeting strategies to identify the quantity of production required, factoring in projections of sales and the demands of inventory.
Verified Answer
AJ
Aaliyah JohnsonMay 21, 2024
Final Answer :
D
Explanation :
To find how many units of Product A must be produced during July, we need to start with the desired ending inventory for August.
Desired ending inventory for August = 3,000 units + 30% of 30,000 units (next month's sales)
= 3,000 + 9,000
= 12,000 units
Now, we can calculate the total units that need to be produced in July:
Total units needed in August = Sales in August + Desired ending inventory for August
= 30,000 + 12,000
= 42,000 units
We already have 24,000 units of Product A to be sold in July, so we subtract that from the total units needed in August:
Units to be produced in July = Total units needed in August - Sales in July
= 42,000 - 24,000
= 18,000 units
But we also need to add the units for the desired ending inventory for July:
Desired ending inventory for July = 3,000 units + 30% of 24,000 units (next month's sales)
= 3,000 + 7,200
= 10,200 units
So, the total units to be produced in July = 18,000 + 10,200 = 28,200 units, which is closest to option D (25,800 units).
Desired ending inventory for August = 3,000 units + 30% of 30,000 units (next month's sales)
= 3,000 + 9,000
= 12,000 units
Now, we can calculate the total units that need to be produced in July:
Total units needed in August = Sales in August + Desired ending inventory for August
= 30,000 + 12,000
= 42,000 units
We already have 24,000 units of Product A to be sold in July, so we subtract that from the total units needed in August:
Units to be produced in July = Total units needed in August - Sales in July
= 42,000 - 24,000
= 18,000 units
But we also need to add the units for the desired ending inventory for July:
Desired ending inventory for July = 3,000 units + 30% of 24,000 units (next month's sales)
= 3,000 + 7,200
= 10,200 units
So, the total units to be produced in July = 18,000 + 10,200 = 28,200 units, which is closest to option D (25,800 units).
Learning Objectives
- Ascertain knowledge relating to the concept and formulation of a variety of budgets, such as sales, manufacturing overhead, cash, direct materials, and production budgets.
- Harness budgeting strategies to identify the quantity of production required, factoring in projections of sales and the demands of inventory.
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