Question

Exercise 23-4 Turney Company produces and sells automobile batteries, the heavy-duty HD-240. The 2017 sales forecast is as follows. Quarter HD-240 1 5,100 2 7,100 3 8,100 4 10,100 The January 1, 2017, inventory of HD-240 is 2,040 units. Management desires an ending inventory each quarter equal to 40% of the next quarter’s sales. Sales in the first quarter of 2018 are expected to be 25% higher than sales in the same quarter in 2017. Prepare quarterly production budgets for each quarter and in total for 2017.

Answer 1

Answer:

$\left[\begin{array}{cccccc}&Q1&Q2&Q3&Q4&Total\\ Sales&5,100&7,100&8,100&10,100&30,400\\ Ending Inventory&2,840&3,240&4,040&2,550&-\\ Producction Needs&7,940&10,340&12,140&12,650&43,070\\ Beginning&(2,040)&(2,840)&(3,240)&(4,040)&-\\ Punits to be produced&5,900&7,500&8,900&8,610&30,910\\\end{array}\right]$

Explanation:

$\left[\begin{array}{cccccc}&Q1&Q2&Q3&Q4&Total\\ Sales&5,100&7,100&8,100&10,100&30,400\\ Ending Inventory&2,840&3,240&4,040&2,550&-\\ Producction Needs&7,940&10,340&12,140&12,650&43,070\\ Beginning&(2,040)&(2,840)&(3,240)&(4,040)&-\\ Punits to be produced&5,900&7,500&8,900&8,610&30,910\\\end{array}\right]$

ending inventory

Q1 = q2 sales x 40% = 7,100 x 40% = 2,840

Q2 = q3 sales x 40% = 8,100 x 40% = 3,240

Q3 = q4 sales x 40% = 10,100 x 40% = 4,040

Q4 = q1 next year x 40%

next year will be 25% than q1 of current year

Q4 = Q1 sales x 1.25 x 40% = 2,550

beginning of Q1 is a given 2,040. Then:

ending of Q1 = beginning of Q2 (when a quarter ends, another begins)

ending of Q2 = beginning of Q3

ending of Q3 = beginning of Q4

The sales plus the desired ending inventory will be all the units needed for the period.

Our beginning inventory subtract out productions needs, as those units are already in stock, we don't need to produce them.