Question

Next year’s sales forecast shows that 20,000 units of Product A and 22,000 units of Product B are going to be sold for prices of $10 and $12 per unit, respectively. The desired ending inventory of Product A is 20% higher than its beginning inventory of 2,000 units. The beginning inventory of Product B is 2,500 units. The desired ending inventory of B is 3,000 units. Budgeted production of Product A for the year would be

Answer 1

The budgeted production of Product A for the year would be is 20,400 units

Step-by-step explanation:

Since in the question, the ending inventory is 20% higher than beginning inventory.

So,

Let us assume the beginning inventory is based on 100. So, for ending inventory it would be 100 + 20 = 120

Now,

Method 1 : Ending inventory = 2,000 × 120 ÷ 100

= 2,400

Method 2 : Ending inventory = 2000 + 2000 × 20%

= 2000 + 400

= 2400 units

In both the methods, the answer is same

After considering the ending inventory, the budgeted could be calculated by using the equation which is shown below:

= Ending inventory + Forecast sales - beginning inventory

= 2,400 + 20,000 - 2,000

= 20,400 units

Thus, budgeted production of Product A for the year would be is 20,400 units.