Question

Bengal Co. provides the following sales forecast for the next three months: July August September Sales units 5,000 5,700 5,560 The company wants to end each month with ending finished goods inventory equal to 25% of the next month's sales. Finished goods inventory on June 30 is 1,250 units. The budgeted production units for August are: Multiple Choice 4,135 units. 4,310 units. 5,665 units. 6,950 units. 7,090 units.

Answer 1

Answer: Option (C) is correct.

Explanation:

Given that,

Sales units for July = 5,000

Sales units for august = 5,700

Sales units for September = 5,560

Desired ending inventory for august = 25% of sales in September

                                                             = 25% × 5,560

                                                             = 1390 Units

Desired ending inventory for July =  25% of sales in august

                                                        = 25% × 5,700

                                                        = 1425 Units

The Desired ending inventory for July is beginning inventory for august.

Therefore,

Beginning inventory for august = 1425 Units

So,

Budgeted production units for August:

=  Sales units for august + Desired ending inventory for august - Beginning inventory for august

= (5,700 + 1390 - 1425) units

= 5665 units