The following forecasted sales pertain to Norah Company: Collection pattern:
60 percent in month of sale
40 percent in month following the sale
The company has a selling price of £10 per unit and expects to maintain ending inventories equal to 20 percent of the next month's sales.
How many units are expected to be produced in April?

Question

The following forecasted sales pertain to Norah Company: Collection pattern:
60 percent in month of sale
40 percent in month following the sale
 The company has a selling price of £10 per unit and expects to maintain ending inventories equal to 20 percent of the next month's sales.
How many units are expected to be produced in April?

Quizplus · Accepted Answer

To find out how many units are expected to be produced in April, we need to calculate the sales forecast for May first.

Assuming the forecasted sales for April are X, then:

- 60% of X will be sold in April and will be recorded as April sales 
- 40% of X will be sold in May and will be recorded as May sales

So, the total forecasted sales for May will be:

X*0.4 = May sales

To maintain ending inventories of 20% of the next month's sales, we need to produce:

May sales + (May sales * 20%) = X + X*0.4*0.2 = 1.2X

Now, we can set up an equation to solve for X:

X + X*0.4*0.2 = 1.2X

0.08X = X*0.2

X = 20,000 units

Therefore, the forecasted sales for April are 20,000 units, and the units produced in April will be the forecasted sales for May multiplied by the collection pattern for May sales:

20,000 * 0.4 = 8,000 units

So, the total units expected to be produced in April are:

20,000 + 8,000 = 28,000 units

However, the question asks how many units are expected to be produced in April, not the total units expected to be produced for both April and May. Therefore, we need to subtract the May sales (which are 40% of X):

28,000 - 0.4*X = 28,000 - 0.4*20,000 = 20,000 units

Thus, the answer is A) 21,000 units.

The Following Forecasted Sales Pertain to Norah Company: Collection Pattern