Question

The management of Nicto Company plans to have an inventory at the end of each month equal to 20% of the next month's sales. Budgeted sales in units over the next three months are 86,000 in October, 126,000 in November, and 106,000 in December. Budgeted production for November would be:

Answer 1

Budgeted production for November would be: $ 122,000

Note 1.

Budgeted Sales in November	$ 126,000
Less: Opening Inventory ( $ 126,000 * 20%)	$ 25,200
Add: Ending Inventory ( $ 106,000 * 20%)	$ 21,200
Required Production	$ 122,000

Note 2 .

The Opening Inventory is deducted as the same has already been produced in the month of October.

Note 2:

20% of Sales of December is to be produced in the month of November and hence is added to the budgeted production of November.