The directors of Charleroi and Biswas Limited are preparing a production budget for December 20X4.The sales budget for December 20X4 is 6000 units, dropping to 4500 for January 20X5.The company's policy is to hold closing inventorys of finished goods at 50% of the next following month's sales level. What is the production budget in units for December 20X4?

Question

Quizplus · Accepted Answer

The production budget for December 20X4 can be calculated as follows: Sales for December (6000 units) + Desired ending inventory for December (50% of January's sales, which is 50% of 4500 = 2250 units) - Beginning inventory for December (which is the ending inventory of November, assumed to be the same as December's ending inventory, 2250 units) = 6000 + 2250 - 2250 = 6000 units. However, since the question asks for the production budget, not the sales, we adjust for the desired ending inventory to ensure we have enough units for January. Thus, the production needs to be 6000 (to meet December's sales) + 2250 (to meet the policy of holding 50% of the next month's sales in inventory) = 8250. However, since we subtract the beginning inventory (which we initially considered as 2250 to find the net requirement), the correct calculation should directly focus on December's production needs: 6000 units to meet sales and an additional 2250 units to meet the inventory policy, without needing to subtract the beginning inventory since it's implicitly accounted for in meeting the end of December's inventory policy. The correct approach is to calculate the total requirement for December, which includes sales and the adjustment for ending inventory without double-counting the beginning inventory. Therefore, the correct calculation is 6000 units for sales + 2250 units to increase inventory = 8250 units. Given the options provided, none directly match this calculation, indicating a need to reassess the explanation based on the provided choices. The correct production budget is to produce enough to meet December's sales and adjust for January's inventory policy, which is calculated as follows: December sales (6000 units) + Increase in inventory to meet January's policy (2250 units) - Beginning inventory (which, upon reevaluation, should not be subtracted in this context as we're focusing on production needs for December only). Given the misunderstanding in the initial explanation, the focus should be on how the production budget is directly calculated from the given options, considering sales and inventory policy without subtracting beginning inventory, as it's not relevant to the calculation of production needs for December. The correct answer, based on the options provided and the correct interpretation of the production budget calculation, aligns with ensuring December's sales and inventory policy are met, which would be directly calculated from the options provided without subtracting the beginning inventory, as it's not a factor in the production calculation for December.

The Directors of Charleroi and Biswas Limited Are Preparing a Production