**Inventory Planning and Budgeting**In this exercise, we analyze an inventory policy where the objective is to maintain an ending inventory equal to 20% of the next month's sales. The following table illustrates the details for the months of April and May:| | April | May ||-------------------|-------|-----|| Desired ending inventory | ? | 90 || Beginning inventory | ? | ? || Budgeted sales | 300 | 360 || Budgeted production | ? | ? |**Task: Compute the budgeted production in May.**Options:- 378- 342- 360- 386- Not enough information**Explanation:**1. **Understanding the Inventory Policy:** - The desired ending inventory for each month is 20% of the next month's sales.2. **Applying the Policy:** - For May, the desired ending inventory is given as 90, which is 20% of June's sales (though June's sales are not directly mentioned here, we assume the calculation is correct based on given data).3. **Budget Calculation:** - To compute the budgeted production, we need to ensure that the sum of beginning inventory and production meets the demand for sales and desired ending inventory.**Strategic Steps:**- Identify the relationship between beginning inventory, budgeted production, sales, and ending inventory.- Use the equation: Beginning Inventory + Production = Sales + Ending Inventory.Using this understanding, you can deduce the requirements for budgeted production in May, considering the 20% policy.Please choose the correct option based on the calculations and logic provided above.

The production budget is used to estimate the units that should be produced. It can be calculated by…

The inventory policy is to have ending inventory equal to 20% of next month's sales.. April Desired ending inventory Beginning inventory Budgeted sales 378 O 342 O 360 ? 386 300 Budgeted production Compute budgeted production in May. May O not enough information 90 ? 360 ?

The inventory policy is to have ending inventory equal to 20% of next month's sales.. April Desired ending inventory Beginning inventory Budgeted sales 378 O 342 O 360 ? 386 300 Budgeted production Compute budgeted production in May. May O not enough information 90 ? 360 ?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Griffith Company has budgeted purchases of inventory for December of $105,000. Expected beginning inventory on December 1 and ending inventory on December 31 are $120,000 and $129,000, respectively. If the cost of goods sold averages 75% of sales, what are budgeted sales for December? A. $114,000 B. $152,000 C. $120,000 D. $128,000
Lane Products manufactures a popular kitchen utensil. The company recently expanded, and the controller believes that it will need to borrow cash to continue operations. It opened negotiations with the local bank for a one-month loan of $44,000 starting March 1. The bank would charge interest at the rate of 0.5 percent per month and require the company to repay interest and principal on March 31. In considering the loan, the bank requested a projected income statement and cash budget for March. The following information is available: ● ● ● ● The company budgeted sales at 14,000 units per month in February, April, and May and at 11,000 units in March. The selling price is $62 per unit. The company offers a 2 percent discount for cash sales. The company's experience is that bad debts average 1 percent of credit sales. The inventory of finished goods on February 1 was 2,600 units. The desired finished goods inventory at the end of each month equals 25 percent of sales anticipated for the…
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