Modesto Company produces and sells Product AlphaB. To guard against stockouts, the company requires that 20% of the next month's sales be on hand at the end of each month. Budgeted sales of Product AlphaB over the next four months are: June July August SeptemberBudgeted Sales in Units 30,000 40,000 60,000 50,000What would be the budgeted production for August?Multiple Choice70,000 units.62,000 units.50,000 units.58,000 units.
Question
Modesto Company produces and sells Product AlphaB. To guard against stockouts, the company requires that 20% of the next month's sales be on hand at the end of each month. Budgeted sales of Product AlphaB over the next four months are: June July August SeptemberBudgeted Sales in Units 30,000 40,000 60,000 50,000What would be the budgeted production for August?Multiple Choice70,000 units.62,000 units.50,000 units.58,000 units.
Solution
To calculate the budgeted production for August, we need to consider the sales forecast for September (since Modesto Company wants to have 20% of the next month's sales on hand at the end of each month) and the sales forecast for August itself.
Here are the steps to calculate:
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Calculate 20% of September's sales forecast: 50,000 units * 20% = 10,000 units. This is the inventory that needs to be on hand at the end of August.
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Add this to August's sales forecast to get the total units that need to be produced in August: 60,000 units (August sales forecast) + 10,000 units (20% of September's sales) = 70,000 units.
So, the budgeted production for August would be 70,000 units.
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