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31 August, 08:47

XYZ Co. has forecasted June sales of 400 units and July sales of 700 units. The company maintains ending inventory equal to 125% of next month's sales. June beginning inventory reflects this policy. What is June's required production?

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  1. 31 August, 11:10
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    775 units

    Explanation:

    By forecast,

    June sales = 400 units

    July sales = 700 units

    if ending inventory equal to 125% of next month's sales

    Then June's ending inventory = 125% * 700

    = 875 units

    May's ending inventory = 125% * 400

    = 500 units

    Opening inventory + production - sales = closing inventory

    Using the formula above, where p = production

    500 + p - 400 = 875

    p = 875 - 100

    p = 775

    Production required for June is 775 units.
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