Figure 8-2 Asian Lamp Company manufactures lamps. The estimated number of lamp sales for the last three months of 2014 are as follows:
Finished goods inventory at the end of September was 3,000 units. Ending finished goods inventory is budgeted to equal 25 percent of the next month's sales. Asian Lamp expects to sell the lamps for $25 each. January 2014 sales is projected at 16,000 lamps.
Refer to Figure 8-2. How many lamps should be produced in November?

Question

Figure 8-2 Asian Lamp Company manufactures lamps. The estimated number of lamp sales for the last three months of 2014 are as follows:
 Finished goods inventory at the end of September was 3,000 units. Ending finished goods inventory is budgeted to equal 25 percent of the next month's sales. Asian Lamp expects to sell the lamps for $25 each. January 2014 sales is projected at 16,000 lamps.
Refer to Figure 8-2. How many lamps should be produced in November?

Quizplus · Accepted Answer

To calculate the number of lamps to be produced in November, we need to calculate the required production to meet the estimated sales for November and the desired ending finished goods inventory for December.

Sales for November = 12,000 units (given) 
Desired ending finished goods inventory for December = 0.25 × 16,000 = 4,000 units

Total production required in November = (12,000 + 4,000) - 3,000 (beginning finished goods inventory) = 13,000 units

However, there may be some units left over from October sales. Let's calculate the expected units left over from October sales: 
October sales = 9,500 units 
Desired finished goods inventory for November = 0.25 × 12,000 = 3,000 units 
Expected units left over from October sales = 9,500 - 3,000 = 6,500 units

Therefore, the number of lamps to be produced in November = 13,000 - 6,500 = 6,500 units 
But, each lamp sold at $25. So, the total revenue from these lamps will be 6,500 × $25 = $162,500.

Figure 8-2 Asian Lamp Company Manufactures Lamps