Question

The Cardinal Company had a finished goods inventory of 55,000 units on January 1. Its projected sales for the next four months were: January - 200,000 units; February - 180,000 units; March - 210,000 units; and April - 230,000 units. The Cardinal Company wishes to maintain a desired ending finished goods inventory of 20% of the following months sales. What would be the budgeted production for March?

(A) 256,000
(B) 206,000
(C) 214,000
(D) 298,000

Answer 1

Given:

Goods inventory = 55,000

Sales:

January - 200,000 units

February - 180,000 units

March - 210,000 units

April - 230,000

First we'll compute the increase in inventory;

Increase in inventory = (230,000×20%) - (210,000×20%)

= 46000 - 42000

= 4000

Sales for March = 210000

∴ Budgeted production for March = Increase in inventory + Sales for March

Budgeted production for March = $4000 + $210000

Budgeted production for March = $214000