Detmer Enterprises has budgeted sales for the next five months as follows: Past experience has shown that the ending inventory for each month should be equal to 10% of the next month's sales in units. The inventory on December 31 contained 400 units, which was in excess of the desired level of inventory. The company needs to prepare a Production Budget for the first quarter of the year.
-The total number of units to be produced in January is:

Question

Detmer Enterprises has budgeted sales for the next five months as follows:  Past experience has shown that the ending inventory for each month should be equal to 10% of the next month's sales in units. The inventory on December 31 contained 400 units, which was in excess of the desired level of inventory. The company needs to prepare a Production Budget for the first quarter of the year.
-The total number of units to be produced in January is:

Quizplus · Accepted Answer

To prepare the production budget, we need to calculate the required units for each month by adding the budgeted sales for that month to the desired ending inventory and subtracting the beginning inventory.

First, we can calculate the desired ending inventory for each month:

January: 420 units (10% of February's budgeted sales)
February: 520 units (10% of March's budgeted sales)
March: 600 units (10% of April's budgeted sales)
 
Next, we calculate the required units for each month:

January: (4,000 + 420) - 400 = 4,020 units
February: (5,000 + 520) - 420 = 5,100 units
March: (6,000 + 600) - 520 = 6,080 units

Therefore, the total number of units to be produced in January is 4,020 units, which is option C.

Detmer Enterprises Has Budgeted Sales for the Next Five Months