Leonard Company is preparing its second quarter production budget. Projected sales in units are 600 for April, 680 for May, and 750 for June. Leonard's policy is to have finished goods inventory equal to 20 per cent of the next month's projected unit sales. What should be the production quota for May?

Question

Quizplus · Accepted Answer

To determine the production quota for May, we need to calculate the desired ending finished goods inventory and subtract it from the total units that need to be available for sale in May.

Projected unit sales for June = 750 units 
Desired ending finished goods inventory for May = 20% x 750 = 150 units

Total units that need to be available for sale in May = 680 units (May projected sales) + 150 units (desired ending finished goods inventory) = 830 units

Therefore, the production quota for May should be 830 - 600 = 230 units.

Answer B (694 units) is the closest choice to our calculated answer.

Leonard Company Is Preparing Its Second Quarter Production Budget