Bright Lamp Company manufactures lamps. The estimated number of lamp sales for the last three months of 2014 are as follows: Finished goods inventory at the end of September was 3,000 units. Ending finished goods inventory is budgeted to equal 25% of the next month's sales. Bright Lamp expects to sell the lamps for $25 each. January 2015 sales are projected at 16,000 lamps. How many lamps should be produced in November?

Question

Bright Lamp Company manufactures lamps. The estimated number of lamp sales for the last three months of 2014 are as follows:  Finished goods inventory at the end of September was 3,000 units. Ending finished goods inventory is budgeted to equal 25% of the next month's sales. Bright Lamp expects to sell the lamps for $25 each. January 2015 sales are projected at 16,000 lamps. How many lamps should be produced in November?

Quizplus · Accepted Answer

To calculate how many lamps should be produced in November, we need to work backwards from the January sale projection of 16,000 lamps:

- Ending finished goods inventory in December should be 25% of January's projected sale, which is 4,000 lamps (16,000 x 0.25).
- To have 4,000 lamps in finished goods inventory, we need to produce 16,000 (January's projected sale) + 3,000 (September's finished goods inventory) - 11,000 (total sales for October, November, and December) = 8,000 lamps in total from October to December.
- We already know that the total sales for October, November, and December are 11,000 lamps, so we subtract that from the 8,000 total lamps we need to produce to get 8,000 - 11,000 = -3,000 lamps.
- This means that we have overproduced by 3,000 lamps, which we can subtract from the 3,000 lamps we produced in September to get 0 lamps to produce in October.
- Finally, we can work backwards from October to November by using the same formula: ending finished goods inventory in November should be 25% of December's projected sale, which is 4,000 lamps. Therefore, we need to produce 4,000 + 0 (ending finished goods inventory in October) - 10,500 (total sales for November and December) = -6,500 lamps. 
- This means we have overproduced by 6,500 lamps, which we can subtract from the November's ending finished goods inventory to get 0. Therefore, we do not need to produce any lamps in November.

Therefore, the best choice is D) 13,750 lamps, as we do not need to produce any lamps in November.

Bright Lamp Company Manufactures Lamps