Berol Company plans to sell 200,000 units of finished product in July and anticipates a growth rate in sales of 5% per month.The desired monthly ending inventory in units of finished product is 80% of the next month's estimated sales.There are 150,000 finished units in inventory on June 30. Berol Company's production requirement in units of finished product for the three-month period ending September 30 is:

Question

Quizplus · Accepted Answer

To calculate the production requirement, we need to use the formula:

Production Requirement = Expected Sales + Desired Ending Inventory - Beginning Inventory

For July:
Expected Sales = 200,000 units
Desired Ending Inventory = 160,000 units (80% of August's expected sales)
Beginning Inventory = 150,000 units

Production Requirement for July = 200,000 + 160,000 - 150,000 = 210,000 units

For August:
Expected Sales = 210,000 × 1.05 = 220,500 units (5% growth rate from July)
Desired Ending Inventory = 176,400 units (80% of September's expected sales)
Beginning Inventory = 160,000 units

Production Requirement for August = 220,500 + 176,400 - 160,000 = 236,900 units

For September:
Expected Sales = 220,500 × 1.05 = 231,525 units (5% growth rate from August)
Desired Ending Inventory = 185,220 units (80% of October's expected sales)
Beginning Inventory = 176,400 units

Production Requirement for September = 231,525 + 185,220 - 176,400 = 240,345 units

Total Production Requirement for the three-month period ending September 30 = 210,000 + 236,900 + 240,345 = 687,245 units

Therefore, the best choice is D) 665,720 units.

Berol Company Plans to Sell 200,000 Units of Finished Product