Budgeted sales for the first six months for Wardrope Corp.are listed below: $\begin{array}{lllllll}
&JANUARY&FEBRUARY&MARCH&APRIL&MAY&JUNE\\hline
UNITS:&6,000&7,000&8,000&7,000&5,000&4,000
\end{array}$ Wardrope Corp.has a policy of maintaining an inventory of finished goods equal to 40 percent of the next month's budgeted sales.If Wardrope Corp.plans to produce 6,000 units in June,what are budgeted sales for July?

Question

Quizplus · Accepted Answer

To find the budgeted sales for July, we need to first calculate the desired ending inventory for June:

Desired Ending Inventory (June) = 40% of Budgeted Sales (July)
Desired Ending Inventory (June) = 0.4 x 8,000 units (since June production will be 6,000 units, we need to plan for 8,000 units of sales in July to maintain the desired inventory level)

Desired Ending Inventory (June) = 3,200 units

Next, we need to calculate the total sales for the first 6 months:

Total Sales (6 months) = 32,000 units (sum of budgeted sales for Jan-Jun)

Now we can calculate the total production for the first 6 months using the following formula:

Total Production (6 months) = Total Sales (6 months) + Desired Ending Inventory (June) - Beginning Inventory (Jan)

Beginning Inventory is not given in the problem, so we can assume it's 0 since it's not specified.

Total Production (6 months) = 32,000 units + 3,200 units - 0 units
Total Production (6 months) = 35,200 units

Since Wardrope Corp. plans to produce 6,000 units in June, the total production for the first 5 months is:

Total Production (5 months) = Total Production (6 months) - Production in June
Total Production (5 months) = 35,200 units - 6,000 units
Total Production (5 months) = 29,200 units

Now we can calculate the budgeted sales for July using the following formula:

Budgeted Sales (July) = Desired Ending Inventory (July) + Production in July - Beginning Inventory (July)

We know that the desired ending inventory for July is 40% of budgeted sales for August, which we don't know yet. We also don't know the beginning inventory for July, so we can assume it's 0.

Substituting the values we have:

Budgeted Sales (July) = 0.4 x Budgeted Sales (August) + 6,000 units - 0 units

Simplifying:

Budgeted Sales (July) = 0.4 x Budgeted Sales (August) + 6,000 units

We can solve for Budgeted Sales (August) using the budgeted sales for the first 6 months:

Budgeted Sales (August) = Total Sales (6 months) - Budgeted Sales (July)
Budgeted Sales (August) = 32,000 units - Budgeted Sales (July)

Substituting in the previous formula:

Budgeted Sales (July) = 0.4 x (32,000 - Budgeted Sales (July)) + 6,000

Simplifying:

Budgeted Sales (July) = 0.4 x 32,000 - 0.4 x Budgeted Sales (July) + 6,000
1.4 x Budgeted Sales (July) = 0.4 x 32,000 + 6,000
1.4 x Budgeted Sales (July) = 19,200
Budgeted Sales (July) = 13,714.29

Rounding to the nearest whole number, the budgeted sales for July is 13,714 units. However, this is not one of the answer choices. The closest answer choice is C) 9,000 units, which is significantly lower than our calculated value. It's possible that there's an error in the problem or in our calculations.