Fab Manufacturing Corporation manufactures and sells stainless steel coffee mugs. Expected mug sales at Fab (in units) for the next three months are as follows: Fab likes to maintain a finished goods inventory equal to 30% of the next month's estimated sales. How many mugs should Fab plan on producing during the month of November?

Question

Fab Manufacturing Corporation manufactures and sells stainless steel coffee mugs. Expected mug sales at Fab (in units) for the next three months are as follows:  Fab likes to maintain a finished goods inventory equal to 30% of the next month's estimated sales. How many mugs should Fab plan on producing during the month of November?

Quizplus · Accepted Answer

To determine how many mugs Fab should plan on producing during November, we need to first calculate the estimated sales for December and the finished goods inventory for November.

Estimated sales for December = 60,000 + 70,000 + 80,000 = 210,000 mugs
Finished goods inventory for November = 0.3 x 210,000 = 63,000 mugs

Therefore, the total demand for November = 70,000 + 80,000 + 210,000 - 63,000 = 297,000 mugs

Since Fab wants to have enough inventory to meet 30% of December's estimated sales, they should plan on producing:
0.7 x 210,000 + 0.3 x (1.3 x 210,000) - 63,000 = 26,800 mugs

Therefore, the best choice is B.

Fab Manufacturing Corporation Manufactures and Sells Stainless Steel Coffee Mugs