Question

Production requirements (LO2) Grainger Sports predict sales next month of 5,500. The company likes to maintain 10 percent of unit sales for each month in ending inventory. The beginning inventory is 400 units. How many units should the firm produce for the coming month?

Answer 1

To determine the number of units the firm should produce for the coming month, calculate the desired ending inventory by multiplying the predicted sales by the desired ending inventory percentage and subtract the beginning inventory from the desired ending inventory.

Step-by-step explanation:

To determine the number of units the firm should produce for the coming month, we need to calculate the desired ending inventory and subtract it from the predicted sales. The desired ending inventory is calculated by multiplying the predicted sales by the desired ending inventory percentage, which is 10%. The calculation is as follows:

Desired ending inventory = 5,500 x 0.10 = 550 units

We then subtract the beginning inventory of 400 units from the desired ending inventory to get the number of units that need to be produced:

Number of units to produce = Desired ending inventory - Beginning inventory = 550 - 400 = 150 units