A manufacturing company expects to sell 12,000 units in August and 15,000 units in September. The company desires to have an ending finished goods inventory of 80% of the next month's sales. If beginning finished goods inventory on August 1 is 8,000 units, then the company should produce units in August.
Question
A manufacturing company expects to sell 12,000 units in August and 15,000 units in September. The company desires to have an ending finished goods inventory of 80% of the next month's sales. If beginning finished goods inventory on August 1 is 8,000 units, then the company should produce units in August.
Solution
To calculate the number of units the company should produce in August, we need to follow these steps:
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Determine the desired ending inventory for August. This is 80% of September's sales, which is 15,000 units. So, 80/100 * 15,000 = 12,000 units.
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Add the expected sales for August to the desired ending inventory for August. This gives us 12,000 (sales) + 12,000 (ending inventory) = 24,000 units.
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Subtract the beginning inventory on August 1 from this total. This gives us 24,000 - 8,000 = 16,000 units.
So, the company should produce 16,000 units in August.
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