Foremost Corporation manufactures boxes. The estimated number of boxes sold for the first three months of 2014 are as follows: Finished goods inventory at the end of December was 900 units. Ending finished goods inventory is equal to 20 percent of the next month's sales. General Corporation expects to sell the boxes for $5 each. April 2014 sales is projected at 4,500 boxes.
How many boxes should be produced in February?
A) 4,140 boxes
B) 4,200 boxes
C) 4,260 boxes
D) 3,900 boxes

Question

Foremost Corporation manufactures boxes. The estimated number of boxes sold for the first three months of 2014 are as follows:  Finished goods inventory at the end of December was 900 units. Ending finished goods inventory is equal to 20 percent of the next month's sales. General Corporation expects to sell the boxes for $5 each. April 2014 sales is projected at 4,500 boxes.
How many boxes should be produced in February?
A) 4,140 boxes 
B) 4,200 boxes 
C) 4,260 boxes 
D) 3,900 boxes

Quizplus · Accepted Answer

To determine how many boxes should be produced in February, we need to calculate the expected sales for March, since ending finished goods inventory for February will be 20% of March's sales.

Expected sales for March: 
= (January's sales + February's sales + March's sales)/3 
= (4,000 + 4,400 + 4,800)/3 
= 4,400 boxes

Ending finished goods inventory for February: 
= 20% of 4,400 
= 880 boxes

Therefore, the total demand for February is: 
= Expected sales for February + Ending finished goods inventory for February - Beginning finished goods inventory 
= 4,400 + 880 - 900 
= 4,380 boxes

To produce 4,380 boxes, Foremost Corporation needs to produce slightly more than that to account for any potential defects or inefficiencies in the production process. A good estimate would be to produce 95% of the total demand:

= 0.95 x 4,380 
= 4,161 boxes

However, this option is not listed in the answer choices. The closest option is A) 4,140 boxes, which is reasonable given the estimate.

Foremost Corporation Manufactures Boxes