Final answer:
To find the number of transmissions to manufacture, the Electro Company's production budget takes into account the sales and desired ending inventory levels for each quarter. For Q2, they must manufacture 465,000 units, and for Q3, they need to produce 515,000 units.
Step-by-step explanation:
The Electro Company needs to prepare a production budget for the second and third quarters. To calculate the number of transmissions to manufacture, we must consider both the expected sales and the desired ending inventory level, which is set at 20% of the next quarter's budgeted unit sales. For the second quarter, the ending inventory should be 20% of the third quarter's sales, and for the third quarter, it should be 20% of the fourth quarter's sales.
For the second quarter, the budgeted sales are 450,000 units and the desired ending inventory is 20% of the third quarter's budgeted sales, which is 525,000 units. So, 20% of 525,000 is 105,000 units. The company already has 90,000 units in finished goods inventory at the end of the first quarter. Therefore, the total number of units needed for the second quarter is the sum of the quarter's sales plus the desired ending inventory minus the beginning inventory, which is 450,000 + 105,000 - 90,000 = 465,000 units.
For the third quarter, the budgeted sales are 525,000 units, and the desired ending inventory is 20% of the fourth quarter's budgeted sales, which is 475,000 units. Thus, 20% of 475,000 is 95,000 units. Since the ending inventory of the second quarter becomes the beginning inventory of the third quarter, the total number of units to produce for the third quarter is 525,000 + 95,000 - 105,000 = 515,000 units.