Leonard Company is preparing its second-quarter production budget. Projected sales in units are 600 for April, 680 for May, and 750 for June. Leonard's policy is to have finished goods inventory equal to 20 per cent of the next month's projected unit sales. What should be the production quota for May?

Question

Quizplus · Accepted Answer

To find out the production quota for May, we need to calculate the total units required for May and then deduct the inventory for May to find out the required production.

Total units required for May = projected sales for May + inventory for June
= 680 + (20% of 750)
= 680 + 150
= 830

Now, deduct the inventory for May from the total units required:
Production quota for May = Total units required - Inventory for May
= 830 - (20% of 680)
= 830 - 136
= 694

Therefore, the production quota for May is 694 units. The correct answer is option B.

Leonard Company Is Preparing Its Second-Quarter Production Budget