Vermicelli Company plans to sell 200,000 units of finished product in July and anticipates a growth rate in sales of 5% per month. The desired monthly ending inventory in units of finished product is 80% of the next month's estimated sales. There are 150,000 finished units in inventory on June 30.
Vermicelli Company's production requirement in units of finished product for the three-month period ending September 30 is: (CMA adapted)

Question

Quizplus · Accepted Answer

To calculate the production requirement, first determine the sales for each month: July (200,000), August (210,000), and September (220,500). Then, calculate the desired ending inventory for each month (80% of the next month's sales): July (168,000), August (176,400), and September (0, since it's the end of the period). The production requirement is calculated as: July (200,000 + 168,000 - 150,000) + August (210,000 + 176,400 - 168,000) + September (220,500 + 0 - 176,400) = 665,720 units.

Vermicelli Company Plans to Sell 200,000 Units of Finished Product