The following forecasted sales pertain to Shankar Company: Finished goods inventory as of April 30 4,000 units
The company has a selling price of $10 per unit and expects to maintain ending inventories equal to 30 percent of the next month's sales.
What is the budgeted beginning balance in units for finished goods inventory on July 1?
A) 4,000 units
B) 3,500 units
C) 5,500 units
D) 4,500 units

Question

The following forecasted sales pertain to Shankar Company:  Finished goods inventory as of April 30 4,000 units
The company has a selling price of $10 per unit and expects to maintain ending inventories equal to 30 percent of the next month's sales.
What is the budgeted beginning balance in units for finished goods inventory on July 1?
A) 4,000 units 
B) 3,500 units 
C) 5,500 units 
D) 4,500 units

Quizplus · Accepted Answer

To determine the budgeted beginning balance for finished goods inventory on July 1, we need to calculate the company's expected sales for the month of June and determine the ending inventory for June. Then, we can calculate the beginning inventory for July using the formula:

Beginning inventory for July = Ending inventory for June

Using the given information, we can calculate the expected sales for June as follows:

Expected sales for June = May sales x (1 + sales growth rate) = 5,000 x 1.1 = 5,500 units

Therefore, Shankar Company expects to sell 5,500 units in June.

To determine the ending inventory for June, we can use the formula:

Ending inventory for June = Expected sales for June x Ending inventory as a percent of next month's sales
= 5,500 x 0.3 = 1,650 units

Therefore, Shankar Company expects to have 1,650 units of finished goods inventory at the end of June.

Finally, we can use the formula above to calculate the beginning inventory for July:

Beginning inventory for July = Ending inventory for June
= 1,650 units

Therefore, the budgeted beginning balance in units for finished goods inventory on July 1 is 1,650 units, or choice D.

The Following Forecasted Sales Pertain to Shankar Company: Finished