Assume a company's estimated sales for January, February, and March are 41,000 units, 42,000 units, and 40,000 units, respectively. The company always maintains ending finished goods inventory equal to 15% of next month's unit sales. What is the required production in units for January? Multiple Choice 41,150 units 47,300 units 40,850 units 41,850 units

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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**Estimating Required Production Units for January**

*Question:*

Assume a company's estimated sales for January, February, and March are 41,000 units, 42,000 units, and 40,000 units, respectively. The company always maintains ending finished goods inventory equal to 15% of next month's unit sales. What is the required production in units for January?

*Multiple Choice:*
- 41,150 units
- 47,300 units
- 40,850 units
- 41,850 units

*Explanation:*

To determine the required production for January, first calculate the ending inventory for that month, which should be 15% of February's sales.

- February's sales = 42,000 units
- Ending inventory for January = 15% of 42,000 units = 6,300 units

Next, calculate the beginning inventory for January, which is 15% of January's sales:

- January's sales = 41,000 units
- Beginning inventory for January = 15% of 41,000 units = 6,150 units

Finally, use the formula for calculating required production:

\[ \text{Required Production} = \text{Sales} + \text{Ending Inventory} - \text{Beginning Inventory} \]

\[ \text{Required Production} = 41,000 + 6,300 - 6,150 = 41,150 \text{ units} \]

Therefore, the correct answer is **41,150 units**.
Transcribed Image Text:**Estimating Required Production Units for January** *Question:* Assume a company's estimated sales for January, February, and March are 41,000 units, 42,000 units, and 40,000 units, respectively. The company always maintains ending finished goods inventory equal to 15% of next month's unit sales. What is the required production in units for January? *Multiple Choice:* - 41,150 units - 47,300 units - 40,850 units - 41,850 units *Explanation:* To determine the required production for January, first calculate the ending inventory for that month, which should be 15% of February's sales. - February's sales = 42,000 units - Ending inventory for January = 15% of 42,000 units = 6,300 units Next, calculate the beginning inventory for January, which is 15% of January's sales: - January's sales = 41,000 units - Beginning inventory for January = 15% of 41,000 units = 6,150 units Finally, use the formula for calculating required production: \[ \text{Required Production} = \text{Sales} + \text{Ending Inventory} - \text{Beginning Inventory} \] \[ \text{Required Production} = 41,000 + 6,300 - 6,150 = 41,150 \text{ units} \] Therefore, the correct answer is **41,150 units**.
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