Question

Vermicelli Company plans to sell 310,000 units of finished product in July and anticipates a growth...

Vermicelli Company plans to sell 310,000 units of finished product in July and anticipates a growth rate in sales of 5% per month. The desired monthly ending inventory in units of finished product is 80% of the next month's estimated sales. There are 260,000 finished units in inventory on June 30.


Vermicelli Company's production requirement in units of finished product for the three-month period ending September 30 is: (CMA adapted)

a) 1074226

b) 977275

c) 1056700

d) 1004366

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Answer #1

Correct option is "'D" -1004366

July August September Total
Unit sales [A] 310000 310000(1+.05)= 325500 325500(1+.05)= 341775 977275
Add:Desired ending inventory [B[ 325500*80%= 260400 341775*80%= 273420 358864*80%= 287091 820911
Total needs [A+B] 570400 598920 628866 1798186
Less:Beginning inventory -260000 -260400 -273420 -793820
Units to be produced 310400 338520 355446 1004366

working:

Beginning inventory for a month is a ending inventory of previous month

October sales = September sales (1+%growth)

              = 341775 (1+.05)

              = 358863.75 (rounded to 358864)

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