Coleman, Inc. anticipates sales of 50,000 units, 48,000 units, and 51,000 units in July, August, and September, respectively. Company policy is to maintain an ending finished-goods inventory equal to 40% of the following month's sales. On the basis of this information, how many units would the company plan to produce in July?

Question

Quizplus · Accepted Answer

To determine the number of units to produce in July, we need to work backwards from August's sales.

August's sales = 48,000 units 
Ending finished goods inventory for August = 40% of September's sales = 40% of 51,000 units = 20,400 units 
Total units needed for August = 48,000 units + 20,400 units = 68,400 units

To determine the number of units to produce in July, we need to account for the ending finished goods inventory for July as well.

Ending finished goods inventory for July = 40% of August's sales = 40% of 48,000 units = 19,200 units 
Total units needed for July = 48,000 units + 19,200 units - 50,000 units (July's sales) = 17,200 units

Therefore, the company would plan to produce 17,200 units in July.