Question

ABC Company's budgeted sales are as follows: July = 3,000 units; August = 2,500 units. June ending inventory = 1,200 units. Budgeted ending inventory must equal 40 percent of next month's budgeted sales. Production budgeted for July would equal ______ units.

Answer 1

The production budgeted for July for ABC Company would be 2,800 units, calculated by adding July's budgeted sales and the desired ending inventory for July, then subtracting June's ending inventory.

Step-by-step explanation:

The student is asking about how to prepare a production budget based on budgeted sales and desired ending inventory levels. To find the number of units ABC Company should produce in July, we must consider the budgeted sales for July, the budgeted sales for August (to calculate desired ending inventory for July), and the ending inventory from June.

The budgeted ending inventory for July is 40% of August's budgeted sales, which is 40% of 2,500 units, resulting in 1,000 units. To calculate the production budget for July, we use this formula:

• Required inventory at the end of July = Next month's sales × Desired ending inventory percentage
• Total required units = July's sales + July's ending inventory
• Production budgeted for July = Total required units - June's ending inventory

Now applying these steps:

1. Required inventory at the end of July = 2,500 units (August's sales) × 40% = 1,000 units
2. Total required units = 3,000 units (July's sales) + 1,000 units (July's ending inventory) = 4,000 units
3. Production budgeted for July = 4,000 units (Total required units) - 1,200 units (June's ending inventory) = 2,800 units

Therefore, the production budgeted for July would equal 2,800 units.