A sales budget is given below for one of the products manufactured by the Key Co

Question

A sales budget is given below for one of the products manufactured by the Key Co.:

The inventory of finished goods at the end of each month must equal 18% of the next month’s sales. On December 31, the finished goods inventory totaled 2,160 units.

Each unit of product requires three specialized electrical switches. Since the production of these specialized switches by Key’s suppliers is sometimes irregular, the company has a policy of maintaining an ending inventory at the end of each month equal to 32% of the next month’s production needs. This requirement had been met on January 1 of the current year.

Prepare a production plan for January, February, March and April. (Input all amounts as positive values.)

Calculate the quantity of switches to be purchased each month for January, February, March and in total for the quarter. (Input all amounts as positive values.)

Sales Budget in Units   January 12,000   February 27,000   March 52,000   April 32,000   May 22,000   June 17,000

Explanation / Answer

Prepare a production plan for January, February, March and April.

Calculate the quantity of switches to be purchased each month for January, February, March and in total for the quarter.

January February March April Sales in units 12000 27000 52000 32000 Add: Desired ending inventory 4860 9360 5760 3960 Total needs 16860 36360 57760 35960 Less: Beginning inventory (2160) (4860) (9360) (5760) Production units 14700 31500 48400 30200

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