Homestyle Interiors sells a variety of home furnishings including entertainment centres.At 31 March,the company had 150 centres in inventory.The company's policy is to maintain an entertainment centre inventory equal to 3 per cent of next month's sales.The company expects the following sales activity for the second quarter of the year:
$$\begin{array} { l r }
\text { April } & \text { 800 centres } \
\text { May } & 1200 \text { centres } \
\text { June } & 1000 \text { centrep }
\end{array}$$
What is the projected production for May?

Question

Homestyle Interiors sells a variety of home furnishings including entertainment centres.At 31 March,the company had 150 centres in inventory.The company's policy is to maintain an entertainment centre inventory equal to 3 per cent of next month's sales.The company expects the following sales activity for the second quarter of the year:
$$\begin{array} { l r } 
\text { April } & \text { 800 centres } \
\text { May } & 1200 \text { centres } \
\text { June } & 1000 \text { centrep }
\end{array}$$
What is the projected production for May?

Quizplus · Accepted Answer

To find the projected production for May, we first determine the desired inventory at the end of April, which is 3% of May's sales (1200 centres). Thus, the desired inventory at the end of April is 0.03 * 1200 = 36 centres. Since the company plans to sell 800 centres in April and wants to have 36 centres left over, it needs to have 800 + 36 = 836 centres available at the beginning of April. Given that the company already has 150 centres in inventory at the end of March, the production for April needs to be 836 - 150 = 686 centres.For May, the desired ending inventory is 3% of June's sales (1000 centres), which is 0.03 * 1000 = 30 centres. The company expects to sell 1200 centres in May, so it needs 1200 + 30 = 1230 centres available at the beginning of May. Since the company will have 36 centres left over from April (as calculated above), the production for May needs to be 1230 - 36 = 1194 centres.

Homestyle Interiors Sells a Variety of Home Furnishings Including Entertainment