Question

Forrest Company manufactures phone chargers and has a JIT policy that ending inventory must equal 10% of the next month’s sales. It estimates that October’s actual ending inventory will consist of 40,000 units. November and December sales are estimated to be 400,000 and 350,000 units, respectively. Compute the number of units to be produced that would appear on the company’s production budget for the month of November.

Answer 1

Answer:

The number of units to be produced that would appear on the company’s production budget for the month of November: 395,000 units

Explanation:

Forrest Company has a JIT policy that ending inventory must equal 10% of the next month’s sales.

Ending inventory in November = 10% of the December's sales = 10% x 350,000 = 35,000 units.

Ending inventory in October (begining inventory in November): 40,000 units

Sales in November: 400,000 units

The number of units to be produced in November = Sales in November (units) +  Ending inventory in November - Beginning inventory in November

= 35,000 + 400,000 - 40,000 = 395,000 units