Houseman, Inc. anticipates sales of 50,000 units, 48,000 units, and 51,000 units in July, August, and September, respectively. Company policy is to maintain an ending finished-goods inventory equal to 40% of the following month's sales.
-On the basis of this information, how many units would the company plan to produce in August?

Question

Houseman, Inc. anticipates sales of 50,000 units, 48,000 units, and 51,000 units in July, August, and September, respectively. Company policy is to maintain an ending finished-goods inventory equal to 40% of the following month's sales. 
-On the basis of this information, how many units would the company plan to produce in August?

Quizplus · Accepted Answer

To calculate the production for August, we need to consider the desired ending inventory for August and the sales forecast for September. The desired ending inventory for August is 40% of September's sales (51,000 units), which equals 20,400 units. The total needs for August are its sales (48,000 units) plus the ending inventory (20,400 units), totaling 68,400 units. However, we must also account for the beginning inventory for August, which is the desired ending inventory for July. July's desired ending inventory is 40% of August's sales (48,000 units), which equals 19,200 units. Therefore, the production for August is the total needs (68,400 units) minus the beginning inventory (19,200 units), which equals 49,200 units.