Question

A company budgeted unit sales of 395,000 units for January, 2020 and 436,000 units for February...

A company budgeted unit sales of 395,000 units for January, 2020 and 436,000 units for February 2020. The company has a policy of having an inventory of units on hand at the end of each month equal to 26% of next month's budgeted unit sales. If there were135,200 units of inventory on hand on December 31, 2019, how many units should be produced in January, 2020 in order for the company to meet its goals?

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Answer #1

We will use the below equation to find the units to be produced in January:

Units to be produced in January 2020 = Units required for sales in January 2020 + Units required in ending inventory in January 2020 - Units in beginning inventory

Given: Units required for sales in January = 395000

Beginning inventory = Ending inventory for December = 135200

Units needed in ending inventory in January = 26% * 436000 = 113360

Now, putting these values in the above equation, we get,

Units to be produced in January 2020 = 395000 + 113360 - 135200

Units to be produced in January 2020 = 373160

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