Meadow Company produces hand tools.A sales budget for the next four months is as follows: March 10,000 units,April 13,000,May 16,000 and June 21,000.Meadow Company's ending finished goods inventory policy is 10% of the following month's sales.March 1 inventory is projected to be 1,400 units.How many units will be produced in March?

Question

Quizplus · Accepted Answer

To determine the production needs for March, we need to calculate the expected sales for April, which is 13,000 units, and then add the 10% of this number for the ending finished goods inventory.

Expected ending inventory for April: 13,000 x 0.10 = 1,300 units

Total production needs for April: 13,000 + 1,300 = 14,300 units

Since the ending finished goods inventory policy is 10% of the following month's sales, this means that the production needs for March are the same as the expected ending inventory for April.

Therefore, production needs for March = expected ending inventory for April = 1,300 units

To meet the production needs of 1,300 units and also account for the beginning finished goods inventory of 1,400 units, Meadow Company needs to produce:

Production needs for March = 1,300 units + 1,400 units (beginning finished goods inventory) = 2,700 units

Therefore, the answer is B) 9,900 units.

Meadow Company Produces Hand Tools