Question

A company budgeted unit sales of 204,000 units for January, 2013 and 240,000 units for

February 2013. The company has a policy of having an inventory of units on hand at the
end of each month equal to 30% of next month's budgeted unit sales. If there were
61,200 units of inventory on hand on December 31, 2012, how many units should be
produced in January, 2013 in order for the company to meet its goals?
A) 214,800 units
B) 204,000 units
C) 193,200 units
D) 276,000 units

Answer 1

The company should produce 214,800 units in January 2013. This is calculated by adding the desired ending inventory for January (30% of February's forecasted sales) to January's sales forecast and subtracting December's ending inventory.

Step-by-step explanation:

The question involves finding out how many units a company should produce in January 2013 to meet its inventory policy and sales goals. The company's policy is to have an inventory equal to 30% of the next month's budgeted unit sales at the end of each month. With a budgeted sales amount of 204,000 units for January and 240,000 units for February, and given there were 61,200 units in inventory at the end of December, we can calculate the production for January as follows:

1. Calculate the desired ending inventory for January, which is 30% of February's sales forecast: 0.30 x 240,000 units = 72,000 units.
2. Add the desired ending inventory for January to January's sales forecast, then subtract December's ending inventory to determine January's production: (204,000 + 72,000) - 61,200 = 214,800 units.

Therefore, the correct answer is Option A) 214,800 units, which is the amount that should be produced in January 2013.