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12 June, 13:12

Porcelain Interiors sells a variety of porcelain products including porcelain sinks. At December 31, the company had 200 sinks in inventory. The company's policy is to maintain a sink inventory equal to 5% of next month's sales. The company expects the following sales activity for the first quarter of the year:January 1,500 sinks

February 2,000 sinks

March 2,300 sinks

What is the projected production for February?

A) 2,115

B) 2,015

C) 1,985

D) 2,215

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Answers (2)
  1. 12 June, 13:29
    0
    The projected production for February is B) 2015 sinks

    Explanation:

    The projected production for any month will include an opening inventory that is expected to be equal to 5% of that month's sale plus production for that month's remaining sales and production of units equal to 5% of net month's sales.

    The expected opening inventory for February under this assumption is 2000*5% = 100 sinks.

    Out of the sales of 2000 for February, 100 will be covered by opening inventory. The remaining sales are 2000 - 100 = 1900

    Thus, the production requirement for February will include production requirement for February's sales = 2000 - 100 = 1900

    plus the production requirement equal to 5% of march sales = 2300 * 5% = 115

    Production in February = 1900 + 115 = 2015 sinks
  2. 12 June, 14:04
    0
    The correct answer is B.

    Explanation:

    Giving the following information:

    The company's policy is to maintain a sink inventory equal to 5% of next month's sales.

    Sales:

    February 2,000 sinks

    March 2,300 sinks

    To determine the number of sinks to be produced in February, we need to use the following formula:

    Production = sales + desired ending inventory - beginning inventory

    Production Budget February:

    Sales = 2,000 sinks

    Ending inventory = 2,300*0.05 = 115

    Beginning inventory = 2,000*0.05 = (100)

    Total = 2,015 sinks
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