Select Manufacturing sells a variety of office products including two-drawer fil

Question

Select Manufacturing sells a variety of office products including two-drawer file cabinets. On June 30, the company had 1,200 cabinets in inventory. The company's policy is to maintain a cabinet inventory equal to 20% of next month's sales. The company expects the following sales activity for the third quarter of the year:

In addition, October's sales are projected to be 10,000 cabinets. What is the total required production for the third quarter?

July 6,000 cabinets August 8,000 cabinets September 9,600 cabinets

Explanation / Answer

Solution:

Production budget for each of the months July through October:

Ending inventory equals to 20% of next month's sales.

Total required production for the third quarter:

= 6,400 + 8,320 + 9,680

= 24,400 Cabinets

July August September October Budgeted sales (cabinets)          6,000          8,000             9,600          10,000 Add desired ending inventory          1,600          1,920             2,000 Total needs          7,600          9,920           11,600 Less beginning inventory          1,200          1,600             1,920 Required production (cabinets)          6,400          8,320             9,680

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