Question

Coleman, Inc., anticipates sales of 59,000 units, 42,000 units, and 57,000 units in July, August, and September, respectively. Company policy is to maintain an ending finished-goods inventory equal to 20% of the following month's sales. On the basis of this information, how many units would the company plan to produce in August?

Answer 1

Production budget

Sales units	42,000
Ending inventory of finished goods	11,400
Total finished goods inventory needed	53,400
Beginning inventory of finished goods	-8,400
Production	45,000

Number of units to be produced in August = 45,000

August sales = 42,000 units

Ending inventory of July = 20% of August sales

= 42,000 x 20%

= 8,400 units

September sales = 57,000 units

Ending inventory of August = 20% of September sales

= 57,000 x 20%

= 11,400 units