A company budgeted unit sales of 204000 units for January 2017 and 240000 units for February 2017. The company has a policy of having an inventory of units on hand at the end of each month equal to 30% of next month's budgeted unit sales. If there were 61200 units of inventory on hand on December 31 2016 how many units should be produced in January 2017 in order for the company to meet its goals?
A) 214800 units
B) 204000 units
C) 193200 units
D) 276000 units

Question

Quizplus · Accepted Answer

To meet its goals in January 2017, the company needs to have inventory equal to 30% of February's budgeted sales (240,000 units) at the end of January. This equals 72,000 units (240,000 * 30%). The company already has 61,200 units from December. For January, the company plans to sell 204,000 units and wants to end with 72,000 units in inventory. Therefore, the company needs to produce 214,800 units in January (204,000 units for sales + 72,000 units for ending inventory - 61,200 units beginning inventory).

A Company Budgeted Unit Sales of 204000 Units for January