Esquire Products Inc. expects the following monthly
sales:
January | $ | 47,000 | July | $ | 41,000 |
February | 38,000 | August | 45,000 | ||
March | 31,000 | September | 48,000 | ||
April | 33,000 | October | 53,000 | ||
May | 27,000 | November | 61,000 | ||
June | 25,000 | December | 43,000 | ||
Total sales = $492,000 | |||||
|
Cash sales are 40 percent in a given month, with the remainder
going into accounts receivable. All receivables are collected in
the month following the sale. Esquire sells all of its goods for $2
each and produces them for $1 each. Esquire uses level production,
and average monthly production is equal to annual production
divided by 12.
a. Generate a monthly production and inventory schedule in units. Beginning inventory in January is 31,000 units.
Below is the chart computing units sold per month:
Month | Sales | SP | Units |
Jan | $ 47,000.00 | 2 | 23500 |
Feb | $ 38,000.00 | 2 | 19000 |
Mar | $ 31,000.00 | 2 | 15500 |
Apr | $ 33,000.00 | 2 | 16500 |
May | $ 27,000.00 | 2 | 13500 |
Jun | $ 25,000.00 | 2 | 12500 |
Jul | $ 41,000.00 | 2 | 20500 |
Aug | $ 45,000.00 | 2 | 22500 |
Sep | $ 48,000.00 | 2 | 24000 |
Oct | $ 53,000.00 | 2 | 26500 |
Nov | $ 61,000.00 | 2 | 30500 |
Dec | $ 43,000.00 | 2 | 21500 |
Total | $ 4,92,000.00 | 246000 |
Units sold = Sales value/ Sales price
January Units sold = 47000/ 2 = 23500 units And so on
So total units sold during the year is 246000 which is the sum of monthly unit sold
If opening inventory is 31000 units so those produced during the year were 246000-31000 = 213000
Therefore monthly production will be 213000/12 = 17916.67 or 17917 rounded off
Inventory Schedule is as follows:
Month | Opening units | Produced | Sold | Closing units |
Jan | 31000 | 17917 | 23500 | 25417 |
Feb | 25417 | 17917 | 19000 | 24334 |
Mar | 24334 | 17917 | 15500 | 26751 |
Apr | 26751 | 17917 | 16500 | 28168 |
May | 28168 | 17917 | 13500 | 32585 |
Jun | 32585 | 17917 | 12500 | 38002 |
Jul | 38002 | 17917 | 20500 | 35419 |
Aug | 35419 | 17917 | 22500 | 30836 |
Sep | 30836 | 17917 | 24000 | 24753 |
Oct | 24753 | 17917 | 26500 | 16170 |
Nov | 16170 | 17917 | 30500 | 3587 |
Dec | 3587 | 17917 | 21500 | 4 |
4 units remaining is only because of the rounding off otherwise there would not be any closing inventory left.
Opening balance + produced - Sold = Closing balance
Opening balance for feb onwards is the closing balance of the previous month
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