Question

The Company’s policy is to maintain a Finished Goods Inventory (FGI) equal to one-half of the following month’s sales. Use the information provided to complete the following production budget for the first quarter. Budgeted Sales for April are 7,000 doors.

January February March
Sales in Units 5,000 4,000 6,000
Desired Units of EFGI 2,000 _____?
Desired Total Units 7,000
Less Desired Units of BFGI 2,500 ______?
Total Production Units 4,500 ? ?
Show your work! EFGI means Ending Finished Goods Inventory; BFGI means Beginning Finished Goods Inventory;

Answer 1

The desired EFGI for February and March are 3,000 and 3,500 doors respectively. The total production units for these months are calculated by subtracting the BFGI from the desired total units, resulting in 6,500 doors for February and 7,500 doors for March.

Step-by-step explanation:

The question involves determining the desired units of Ending Finished Goods Inventory (EFGI) and Beginning Finished Goods Inventory (BFGI) for a company's production budget. According to the company’s policy of maintaining a Finished Goods Inventory equal to one-half of the following month’s sales, we can calculate the amounts needed to complete the production budget for the first quarter.

For February, we need to calculate EFGI, which would be half of March sales (6,000 doors), amounting to 3,000 doors. The desired total units for February would be March sales plus EFGI for February (6,000 + 3,000), giving us 9,000 doors. To find the total production units for February, subtract the BFGI (EFGI of January, which is 2,500 doors) from the desired total units of February, resulting in 6,500 doors.

For March, EFGI would be half of April sales (7,000 doors), hence 3,500 doors. The desired total units for March would sum April sales and EFGI for March (7,000 + 3,500), giving us 10,500 doors. Finally, subtract March’s BFGI (EFGI of February, which is 3,000 doors) from the desired total units, resulting in 7,500 doors for total production units in March.