A company budgeted unit sales of 204,000 units for January, 2020 and 240,000 units for February 2020. The company has a policy of having an inventory of units on hand at the end of each month equal to 30% of next month's budgeted unit sales. If there were 61,200 units of inventory on hand on December 31, 2019, how many units should be produced in January, 2020 in order for the company to meet its goals?

Question

Quizplus · Accepted Answer

To meet its goals, the company needs to have 30% of February's budgeted sales (240,000 units) as inventory at the end of January, which is 72,000 units. They start with 61,200 units in December. For January, they plan to sell 204,000 units. So, they need to produce enough to cover January sales and increase inventory to 72,000 units. The calculation is: 204,000 (January sales) + (72,000 - 61,200) (increase in inventory) = 214,800 units.

A Company Budgeted Unit Sales of 204,000 Units for January