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At January 1, 2020, Jake, Inc.has beginning inventory of 4,000 surfboards.Jake estimates it will sell 15,000 units during the first quarter of 2020 with a 10% increase in sales each quarter.Jake's policy is to maintain an ending inventory equal to 25% of the next quarter's sales.Each surfboard costs $200 and is sold for $250.
-How many units should Jake produce during the first quarter of 2020?
A)15,125
B)15,000
C)12,500
D)11,000

Question

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At January 1, 2020, Jake, Inc.has beginning inventory of 4,000 surfboards.Jake estimates it will sell 15,000 units during the first quarter of 2020 with a 10% increase in sales each quarter.Jake's policy is to maintain an ending inventory equal to 25% of the next quarter's sales.Each surfboard costs $200 and is sold for $250.
-How many units should Jake produce during the first quarter of 2020?
A)15,125
B)15,000
C)12,500
D)11,000

Quizplus · Accepted Answer

Jake, Inc. plans to sell 15,000 units in the first quarter with a 10% increase each quarter, so second quarter sales are expected to be 15,000 * 1.10 = 16,500 units. The policy is to maintain an ending inventory of 25% of the next quarter's sales, so the desired ending inventory for the first quarter is 16,500 * 0.25 = 4,125 units. The beginning inventory is 4,000 units, and the sales are expected to be 15,000 units. To find out how many units Jake should produce, we calculate the required units to meet sales and desired ending inventory minus the beginning inventory: (15,000 sales + 4,125 desired ending inventory) - 4,000 beginning inventory = 15,125 units.

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