Question

Blue Wave Co. predicts the following unit sales for the coming four months: September, 3, 600 units; October, 4, 900 units; November, 6,000 units; and December, 8, 400 units. The company's policy is to maintain finished goods inventory equal to 60% of the next month's sales. At the end of August, the company had 2, 700 finished units on hand.

Prepare a production budget for each of the months of September, October, and November.

Answer 1

See explanation section

Step-by-step explanation:

Blue Wave Corporation

Production Budget

For the months of September, October, and November

September October November

Budgeted sales 3,600 4,900 6,000

Add: Ending finished

goods Inventory 2,940 3,600 5,040

Inventory available

for sale 6,540 8,500 11,040

Less: Beginning finished

goods Inventory (2,700) (2,940) (3,600)

Budgeted finished

goods production 3,840 5,560 7,440

Total production = 16,840 units

Note: Current months ending finished goods is the next months beginning finished goods.

Ending Inventory for September = 4,900 × 60% = 2,940

October = 6,000 × 60% = 3,600

November = 8,400 × 60% = 5,040