Asked by Annika Hogstrom on Apr 29, 2024
Verified
Harden, Incorporated, has budgeted sales in units for the next five months as follows: Past experience has shown that the ending inventory for each month should be equal to 15% of the next month's sales in units. The inventory on May 31 contained 1,050 units. The company needs to prepare a production budget for the next five months.The beginning inventory for September should be:
A) 1,020 units
B) 1,050 units
C) 1,065 units
D) 735 units
Production Budget
An estimation of the number of units that must be manufactured to meet the sales goals and the estimated costs involved.
Ending Inventory
The total value of all inventory, including raw materials, work-in-progress, and finished goods, at the end of an accounting period.
Budgeted Sales
Budgeted sales represent the anticipated amount of sales revenue a company expects to achieve in a future period, often used for planning and setting performance objectives.
- Gauge the production essentials in relation to projected sales figures and the strategies for managing inventory.
- Analyze the impact of inventory policies on budgeting (both finished goods and raw materials).
Verified Answer
Step 1: Calculate the required ending inventory for each month by multiplying the next month's sales by 15%.
Step 2: Calculate the required production for each month by adding the required ending inventory to the budgeted sales and subtracting the beginning inventory.
Using this method, we can prepare the following production budget:
| Month | July | August | September | October | November |
|-------|------|--------|-----------|---------|----------|
| Sales | 6,000 | 7,000 | 8,000 | 9,000 | 10,000 |
| Ending Inventory | 1,050 | 1,050 | 1,200 | 1,350 | 1,500 |
| Required Production | 4,950 | 5,900 | 6,800 | 7,800 | 8,550 |
| Beginning Inventory | 1,050 | 1,140 | 1,020 | 1,230 | 1,350 |
Therefore, the beginning inventory for September should be 1,020 units (Choice A).
Learning Objectives
- Gauge the production essentials in relation to projected sales figures and the strategies for managing inventory.
- Analyze the impact of inventory policies on budgeting (both finished goods and raw materials).
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