Next year's sales forecast shows that 20,000 units of Product A and 22,000 units of Product B are going to be sold for prices of $10 and $12 per unit, respectively. The desired ending inventory of Product A is 20% higher than its beginning inventory of 2,000 units. The beginning inventory of Product B is 2,500 units. The desired ending inventory of B is 3,000 units.
Budgeted production of Product A for the year would be
A) 22,400 units
B) 20,400 units
C) 20,000 units
D) 12,200 units

Question

Next year's sales forecast shows that 20,000 units of Product A and 22,000 units of Product B are going to be sold for prices of $10 and $12 per unit, respectively.  The desired ending inventory of Product A is 20% higher than its beginning inventory of 2,000 units.  The beginning inventory of Product B is 2,500 units.  The desired ending inventory of B is 3,000 units.
Budgeted production of Product A for the year would be
A) 22,400 units
B) 20,400 units
C) 20,000 units
D) 12,200 units

Quizplus · Accepted Answer

First, we need to calculate the desired ending inventory of Product A: 
Desired Ending Inventory of A = Beginning Inventory of A * 1.20 = 2,000 * 1.20 = 2,400 units

Next, we can calculate the total sales of Product A: 
Total sales of A = 20,000 units

We can now find the total units of A needed for the year: 
Total units of A needed = Total sales of A + Desired Ending Inventory of A - Beginning Inventory of A 
Total units of A needed = 20,000 + 2,400 - 2,000 = 20,400 units

For Product B, we already know the total sales and the desired ending inventory. So, we can find the total units of B needed for the year: 
Total units of B needed = Total sales of B + Desired Ending Inventory of B - Beginning Inventory of B 
Total units of B needed = 22,000 + 3,000 - 2,500 = 22,500 units

Since we need to produce enough units to meet the total units needed for both A and B, we can add them together: 
Total units needed = Total units of A needed + Total units of B needed 
Total units needed = 20,400 + 22,500 = 42,900 units

Therefore, the budgeted production of Product A for the year would be 20,400 units (Option B).

Next Year's Sales Forecast Shows That 20,000 Units of Product