Cody Manufacturing started doing business on January 1^st of the current year.Cody estimates that its sales will be 9,000 units in the first quarter, 7,000 units in the second quarter, 14,000 units in the third quarter and 12,000 units in the fourth quarter.Cody's selling price is set at $20 per unit and is not expected to change during the year.Cody intends to have 10% of the next quarter's sales in its ending inventory each quarter.How many units should Cody budget for second quarter's production? A)6,300 units. B)9,700 units. C)7,700 units. D)7,000 units. E)None of the above.

Question

Quizplus · Accepted Answer

To determine the production needed for the second quarter, we need to first calculate the desired ending inventory for the first quarter, which is 10% of the second quarter's estimated sales, or 900 units (10% x 9,000 units).
Then, we need to calculate the total units needed for the second quarter, which is the estimated sales for the second quarter (7,000 units) plus the desired ending inventory for the second quarter (10% x 14,000 units = 1,400 units) minus the ending inventory for the first quarter (900 units). 
So the total units needed for the second quarter is 7,000 + 1,400 - 900 = 7,500 units. However, we need to produce an additional 10% to account for the desired ending inventory for the third quarter, which is 10% of the third quarter's estimated sales, or 1,400 units (10% x 14,000 units). 
Therefore, the total units to produce in the second quarter is 7,500 + 1,400 = 8,900 units, which is closest to choice C (7,700 units).

Cody Manufacturing Started Doing Business on January 1st of the Current

Cody Manufacturing Started Doing Business on January 1^st of the Current