Douglas Corporation plans to sell 24,000 units of Product A during July and 30,000 units during August. Sales of Product A during June were 25,000 units. Past experience has shown that end-of-month inventory should equal 3,000 units plus 30% of the next month's sales. On June 30 this requirement was met. Based on these data, how many units of Product A must be produced during the month of July?

Question

Quizplus · Accepted Answer

To find how many units of Product A must be produced during July, we need to start with the desired ending inventory for August.

Desired ending inventory for August = 3,000 units + 30% of 30,000 units (next month's sales) 
= 3,000 + 9,000 
= 12,000 units

Now, we can calculate the total units that need to be produced in July:

Total units needed in August = Sales in August + Desired ending inventory for August 
= 30,000 + 12,000 
= 42,000 units

We already have 24,000 units of Product A to be sold in July, so we subtract that from the total units needed in August:

Units to be produced in July = Total units needed in August - Sales in July 
= 42,000 - 24,000 
= 18,000 units

But we also need to add the units for the desired ending inventory for July:

Desired ending inventory for July = 3,000 units + 30% of 24,000 units (next month's sales) 
= 3,000 + 7,200 
= 10,200 units

So, the total units to be produced in July = 18,000 + 10,200 = 28,200 units, which is closest to option D (25,800 units).

Douglas Corporation Plans to Sell 24,000 Units of Product a During