Bengal Company provides the following unit sales forecast for the next three months: July August SeptemberSales units 5,000 5,700 5,560 The company wants to end each month with ending finished goods inventory equal to 25% of the next month's sales. Finished goods inventory on June 30 is 1,250 units. The budgeted production units for August are:Multiple Choice7,090 units.4,135 units.5,665 units.4,310 units.6,950 units.
Question
Bengal Company provides the following unit sales forecast for the next three months: July August SeptemberSales units 5,000 5,700 5,560 The company wants to end each month with ending finished goods inventory equal to 25% of the next month's sales. Finished goods inventory on June 30 is 1,250 units. The budgeted production units for August are:Multiple Choice7,090 units.4,135 units.5,665 units.4,310 units.6,950 units.
Solution
To calculate the budgeted production units for August, we need to consider the desired ending inventory for August and the beginning inventory for August.
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The desired ending inventory for August is 25% of September's sales forecast. So, 25/100 * 5,560 = 1,390 units.
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The beginning inventory for August is the desired ending inventory for July, which is 25% of August's sales forecast. So, 25/100 * 5,700 = 1,425 units.
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The total units needed for August are the sum of the sales forecast for August and the desired ending inventory for August. So, 5,700 + 1,390 = 7,090 units.
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The budgeted production units for August are the total units needed for August minus the beginning inventory for August. So, 7,090 - 1,425 = 5,665 units.
So, the correct answer is 5,665 units.
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