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At January 1, 2016, Jake, Inc.has beginning inventory of 4,000 surfboards.Jake estimates it will sell 15,000 units during the first quarter of 2016 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 2016?
A)15,125
B)15,000
C)12,500
D)11,000

Question

Use the following information for questions 
At January 1, 2016, Jake, Inc.has beginning inventory of 4,000 surfboards.Jake estimates it will sell 15,000 units during the first quarter of 2016 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 2016?
A)15,125
B)15,000
C)12,500
D)11,000

Quizplus · Accepted Answer

Jake needs to sell 15,000 units in the first quarter. The ending inventory should be 25% of the second quarter's sales, which is 15,000 * 1.10 = 16,500 units. Therefore, ending inventory should be 16,500 * 0.25 = 4,125 units. The beginning inventory is 4,000 units. Thus, Jake should produce 15,000 + 4,125 - 4,000 = 15,125 units.

Use the Following Information for Questions