Paige Company estimates that unit sales will be 10,000 in quarter 1, 14,000 in quarter 2, 15,000 in quarter 3, and 18,000 in quarter 4. Management desires to have an ending finished goods inventory equal to 25% of the next quarter's expected unit sales. Prepare a production budget by quarters for the first 6 months of 2017.

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Business

Chanel Watson

7 November, 05:03

Paige Company estimates that unit sales will be 10,000 in quarter 1, 14,000 in quarter 2, 15,000 in quarter 3, and 18,000 in quarter 4. Management desires to have an ending finished goods inventory equal to 25% of the next quarter's expected unit sales. Prepare a production budget by quarters for the first 6 months of 2017.

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Jordyn Little · Answer 1

Units to be Produced 1 quarter: 11000

Units to be Produced 2 quarter: 14250

Explanation:

The first 6 months of 2017 includes first and second quater. So, we have to get 2 production budget.

The formula to calculate production needs is:

Units to be Produced = Expected Unit Sales + Units in Desired Ending Inventory (EI) - Units in Beginning Inventory (BI)

First quarter

Expected Unit Sales 10000

EI = 3500

BI=2500 (25% of quarter 4)

Units to be Produced 1 quarter: 13500

Second quarter

Expected Unit Sales 14000

EI = 3750

BI = 3500 (25% of quarter 1)

Units to be Produced 2 quarter: 14250