Figure 8-2 Oriental Lamp Company manufactures lamps.The estimated number of lamp sales for the last three months of 2011 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.Oriental Lamp expects to sell the lamps for $25 each.January 2011 sales is projected at 16,000 lamps.
-Refer to Figure 8-2.Oriental Lamp Company manufactures lamps. How many lamps should be produced in October?

Question

Figure 8-2 Oriental Lamp Company manufactures lamps.The estimated number of lamp sales for the last three months of 2011 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.Oriental Lamp expects to sell the lamps for $25 each.January 2011 sales is projected at 16,000 lamps.
-Refer to Figure 8-2.Oriental Lamp Company manufactures lamps. How many lamps should be produced in October?

Quizplus · Accepted Answer

To select the optimal production level, the company should produce where marginal cost equals marginal revenue. In this case, MC = MR at 10,500 lamps. At this level, the company will maximize its profit by producing the same number of units that it can sell at a market price of $18 each.

Figure 8-2 Oriental Lamp Company Manufactures Lamps