Modesto Company produces and sells Product AlphaB.To guard against stockouts,the company requires that 20% of the next month's sales be on hand at the end of each month.Budgeted sales of Product AlphaB over the next four months are:
What would be the budgeted production for August?
A) 50,000 units.
B) 58,000 units.
C) 62,000 units.
D) 70,000 units.

Question

Modesto Company produces and sells Product AlphaB.To guard against stockouts,the company requires that 20% of the next month's sales be on hand at the end of each month.Budgeted sales of Product AlphaB over the next four months are: 
What would be the budgeted production for August?
A) 50,000 units. 
B) 58,000 units. 
C) 62,000 units. 
D) 70,000 units.

Quizplus · Accepted Answer

To calculate budgeted production for August, we need to calculate the desired ending inventory for July.
Desired ending inventory for July = 20% of August sales = 20% of 60,000 units (August sales) = 12,000 units.
Therefore, the total units needed for July = August sales + desired ending inventory for July = 60,000 + 12,000 = 72,000 units.
Similarly, we can calculate the total units needed for August, September, and October.
Total units needed for August = September sales + desired ending inventory for August = 70,000 + 20% of 60,000 = 70,000 + 12,000 = 82,000 units.
Total units needed for September = October sales + desired ending inventory for September = 80,000 + 20% of 70,000 = 94,000 units.
Total units needed for October = November sales + desired ending inventory for October = 90,000 + 20% of 80,000 = 106,000 units.
Therefore, the budgeted production for August would be:
Total units needed for August - desired ending inventory for July = 82,000 - 12,000 = 70,000 units. 
Hence, the correct answer is option B.

Modesto Company Produces and Sells Product AlphaB