Question

Sander Co. has budgeted sales in units for the next four months as follows:

July                        7,000 units

August                   7,200 units

September             8,000 units

October                 7,900 units
Past experience has shown that the ending inventory for each month should be equal to 15% of the next month's sales in units.  The company needs to prepare a production budget for the next four months.
The beginning inventory for September should be:

a. 1,080 units

b. 1,200 units

c. 1,185 units

d. 1,170 units

Answer 1

Answer: Option b) 1,200 units

Calculations:

August sales	7,200
Add: Beginning [7,200 x 15%]	1,080
Total inventory available for sale	8,280
Less: Ending [8,000 x 15%]	1,200
Cost of goods sold	7,080

September beginning inventory = 1,200 units

*Previous month ending inventory is next month beginning invenory.

Therefore, September beginning inventory = 1,200 units

Thus, option b) is correct and remaining options are incorrect.