Budgeted sales for the first six months for Shelton Corp. are listed below: Shelton Corp. has a policy of maintaining an inventory of finished goods equal to 30 percent of the next month's budgeted sales. If Shelton Corp. plans to produce 8,000 units in June, what are budgeted sales for July?

Question

Budgeted sales for the first six months for Shelton Corp. are listed below:  Shelton Corp. has a policy of maintaining an inventory of finished goods equal to 30 percent of the next month's budgeted sales. If Shelton Corp. plans to produce 8,000 units in June, what are budgeted sales for July?

Quizplus · Accepted Answer

To find budgeted sales for July, we need to first find the budgeted sales for June.

Budgeted sales for June = 7,000 units

Since Shelton Corp. maintains an inventory of finished goods equal to 30% of the next month's budgeted sales, the inventory level at the end of June would be:

Inventory level at end of June = 30% x 8,000 units = 2,400 units

This means that the total demand for July (including the inventory carried forward from June) would be:

Total demand for July = Budgeted sales for July + Inventory level at end of June

We know that Shelton Corp. plans to produce 8,000 units in June, which means that the inventory level at the end of July should be 30% of 8,000 or 2,400 units.

Therefore:

Total demand for July = Budgeted sales for July + 2,400 units

But we also know that Shelton Corp. has a policy of maintaining an inventory of finished goods equal to 30% of the next month's budgeted sales.

So:

2,400 units = 30% x Budgeted sales for July

Budgeted sales for July = 2,400 units ÷ 0.30 = 8,000 units

Therefore, budgeted sales for July = 8,000 units - 2,400 units = 5,600 units

But remember that this is in addition to the 2,400 units of inventory that will be carried forward from June.

So the total demand for July will be:

Total demand for July = Budgeted sales for July + Inventory level at end of June 
Total demand for July = 5,600 units + 2,400 units = 8,000 units

Therefore, the budgeted sales for July are 8,000 units.

The correct choice is D.

Budgeted Sales for the First Six Months for Shelton Corp