Question

Cherboneau Novelties produces drink coasters (among many other products). During the current year (year O), the company sold 536,000 units (packages of 6 coasters). In the coming year (year 1), the company expects to sell 572,000 units, and, in year 2, it expects to sell 816,000 units. The target ending finished goods inventory for each month is equal to the next month's sales. However, because of production issues, the ending inventory in the current year is expected to be only 20,000 units.. Each unit requires 0.5 pound of cork. At the end of the current year, management expects to have 22,750 pounds of cork in inventory. Management has set a target to have cork on hand equal to one half of next month's sales requirements. Sales and production take place evenly throughout the year. Required: a. Compute the total targeted production of the finished coaster for the coming year. b. Compute the required amount of cork to be purchased for the coming year.

Answer 1

To calculate Cherboneau Novelties' targeted coaster production for the coming year, add expected sales to desired ending inventory and subtract initial inventory to get 620,000 units. To find the needed cork purchase, consider units to produce, cork per unit, and adjust for beginning and ending inventory, which results in a requirement of 321,250 pounds of cork.

Step-by-step explanation:

Calculating Production and Cork Requirements

To compute the total targeted production of finished coasters for the coming year (year 1), we need to account for expected sales and desired ending inventory. The formula is: Targeted Production = Expected Sales + Ending Inventory - Beginning Inventory. Expected sales for year 1 are 572,000 units. The ending inventory for each month should be equal to the next month's sales, which means the ending inventory for year 1 should be the same as the sales for the first month of year 2. Since sales are evenly distributed, the first month of year 2 is 1/12 of the annual sales for year 2, so the target ending inventory for year 1 is 816,000 units / 12 = 68,000 units. However, the expected beginning inventory is only 20,000 units. Therefore, the targeted production for the coming year is 572,000 + 68,000 - 20,000 = 620,000 units.

The formula to compute the required amount of cork to be purchased for the coming year is: Required Cork Purchase = (Units Production Requirement x Cork Per Unit) + Ending Cork Inventory - Beginning Cork Inventory. Each unit requires 0.5 pounds of cork, and the target ending cork inventory is half of the next month's sales requirement. Thus, 620,000 units x 0.5 pounds/unit = 310,000 pounds of cork needed for production. The target ending cork inventory for year 1 should be half of the first month's sales for year 2 in cork weight, which equates to (816,000 units / 12) x 0.5 pounds/unit = 34,000 pounds. The beginning cork inventory is 22,750 pounds. Hence, the required cork purchase for the coming year is 310,000 + 34,000 - 22,750 = 321,250 pounds of cork.

Answer 2

The total targeted production of the finished coasters for the coming year is 1,368,000 units. The required amount of cork to be purchased for the coming year is 684,000 pounds.

Step-by-step explanation:

To compute the total targeted production of the finished coasters for the coming year, we need to add up the expected sales in year 1 and year 2, and subtract the ending inventory in the current year. The total targeted production is 572,000 units (year 1 sales) + 816,000 units (year 2 sales) - 20,000 units (ending inventory) = 1,368,000 units.

To compute the required amount of cork to be purchased for the coming year, we need to multiply the total targeted production by the amount of cork required per unit. Each unit requires 0.5 pound of cork, so the required amount of cork to be purchased is 1,368,000 units (total targeted production) * 0.5 pound = 684,000 pounds.