Question

Roberts Enterprises has budgeted sales in units for the next five months as follows: June July August September October 4,600 units 7,600 units 5,400 units 6,900 units 3,800 units Past experience has shown that the ending inventory for each month must be equal to 20% of the next month's sales in units. The inventory on May 31 contained 920 units. The company needs to prepare a production budget for the second quarter of the year. The total number of units to be produced in July is:

Answer 1

Units to be produced in July = 80% of July month's budgeted sales + 20% of August month's budgeted sales = 80% of 7,600 units + 20% of 5,400 units = 6,080 units + 1,080 units = 7,160 units.

80% of July month's budgeted sales will be produced in current month as 20% of July's budgeted sales will have been produced in previous month to be kept as closing stock.

while, ending inventory for July will consist of 20% of budgeted sales units of August.