Question

Trago Company manufactures a single product and has a JIT policy that ending inventory must equal 20% of the next month's sales. It estimates that May's ending inventory will consist of 59,000 units. June and July sales are estimated to be 295,000 and 305,000 units, respectively. Compute the number of units to be produced that would appear on the company's production budget for the month of June.

Answer 1

Answer:

297,000 units

Explanation:

Key to note is that the JIT policy allows that ending inventory must equal 20% of the next month's sales. This is an important consideration in determining the amount to be produced in the month as the relationship between all these may be stated as

Opening balance + production - units sold = closing balance

Ending balance for June = 20% * 305,000

= 61,000 units

59,000 + production - 295,000 = 61,000

Production = 61,000 + 295,000 - 59,000

= 297,000 units

Answer 2

Answer:

The number of units that would appear in June's production budget are 297000 units.

Explanation:

The production in June will contain 80% units that relates to June's budgeted sales and 20% units that relate to July's budgeted sales. Thus, the number of units that are to be produced in June are:

June's Production = 0.8 * 295000 + 0.2 * 305000 = 297000 units

Thus, in June, 297000 units will be produced.