Question

Fab Manufacturing Corporation manufactures and sells stainless steel coffee mugs. Expected mug sales at Fab (in units) for the next three months are as follows:
Month Budget unit sales
October 28,000
November 25,000
December 31,000 Fab likes to maintain a finished goods inventory equal to 30% of the next month's estimated sales. How many mugs should Fab plan on producing during the month of November?

Answer 1

Answer:

Total Production for the month of November shall be = 26,800 units

Explanation:

Sales for the month shall be as follows:

October = 28,000

November = 25,000

December = 31,000

It is provided that inventory of finished goods at month end = 30% of next month's sales.

Thus Opening Inventory of November = 30% of sales

= 25,000 $\times$ 30% = 7,500 units

Total Production for the month shall be = Sales for the month - Opening Inventory + Closing inventory to be maintained.

Sales for the month = 25,000

Opening Inventory = 7,500

Closing Inventory to be maintained = 31,000 $\times$ 30% = 9,300

Thus, Total Production for the month of November shall be = 25,000 - 7,500 + 9,300 = 26,800 units