Question

Electro Company manufactures an innovative automobile transmission for electric cars. Management predicts that ending finished goods inventory for the first quarter will be 208,500 units. The following unit sales of the transmissions are expected during the rest of the year: second quarter, 417,000 units; third quarter, 469,000 units; and fourth quarter, 289,500 units. Company policy calls for the ending finished goods inventory of a quarter to equal 50% of the next quarter's budgeted sales.

Required:
Prepare a production budget for both the second and third quarters that shows the number of transmissions to manufacture.

Answer 1

Instructions are below.

Step-by-step explanation:

Giving the following information:

Beginning inventory= 208,500 units.

Sales:

second quarter= 417,000 units

third quarter= 469,000 units

fourth quarter= 289,500 units.

Desired ending inventory= 50% of the next quarter's budgeted sales.

To calculate the production for each quarter, we need to use the following formula:

Production= sales + desired ending inventory - beginning inventory

Second-quarter:

Sales= 417,000

Desired ending inventory= 0.5*469,000= 234,500

Beginning inventory= (208,500)

Total production= 443,000

Third-quarter:

Sales= 469,000

Desired ending inventory= 0.5*289,500= 144,750

Beginning inventory= (234,500)

Total production= 379,250