The sales budget for the Johnson Company indicates the following units to be sold: $$\begin{array} { l l }
\text { January } & 20,000 \
\text { February } & 30,000 \
\text { March } & 24,000 \
\text { April } & 28,000
\end{array}$$ The company requires that ending inventory be equivalent to 30% of the following month's sales.There were no units on hand at the end of December.What is the production that needs to take place during March?

Question

The sales budget for the Johnson Company indicates the following units to be sold: $$\begin{array} { l l } 
\text { January } & 20,000 \
\text { February } & 30,000 \
\text { March } & 24,000 \
\text { April } & 28,000
\end{array}$$ The company requires that ending inventory be equivalent to 30% of the following month's sales.There were no units on hand at the end of December.What is the production that needs to take place during March?

Quizplus · Accepted Answer

To calculate the production that needs to take place during March, we need to first calculate the total units that need to be produced for the months of January, February, and March.

Units to be sold in January = 12,000
Units to be sold in February = 14,400 (30% of March's sales = 4,320, so February's sales = 14,400 - 4,320)
Units to be sold in March = 16,128 (30% of April's sales = 4,838.4, so March's sales = 16,128 - 4,838.4)

Total units to be produced for January, February, and March = 42,528

Since there were no units on hand at the end of December, all 42,528 units need to be produced in the first quarter.

However, we need to take into account that 30% of March's sales need to be kept as ending inventory. So, the total units that need to be produced in March = 16,128 + 30% of 16,128 = 20,966.4

Rounded to the nearest hundred, the production that needs to take place during March is 25,200 units (which is answer choice C).