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Homework answers / question archive / September 40,000 1,201,000 October 36,000 1,143,200 Company policy requires that ending inventories for each month be 20 percent of next month's sales

September 40,000 1,201,000 October 36,000 1,143,200 Company policy requires that ending inventories for each month be 20 percent of next month's sales

Accounting

September 40,000 1,201,000 October 36,000 1,143,200 Company policy requires that ending inventories for each month be 20 percent of next month's sales. At the beginning of July, of consumer products met that policy. Required: Prepare a production budget for the third quarter of the year. Show the number of units that should be produced each month as in total Palmgren Company Production Budget For the Third Quarter July August September Total Unit sales 30,500 34.000 10,000 104,500 ? ? ? Total needed Units produced

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Palmgren Company
Production Budget
For the Third Quarter
  July August September Total
Unit sales 30,500 34,000 40,000 104,500
Desired ending inventory                    [Refer working note 1] 6,800 8,000 7,200 22,000
Total needed 37,300 42,000 47,200 126,500
Less: Beginning inventory          [Refer working note 2] 6,100 6,800 8,000 20,900
Units produced 31,200 35,200 39,200 105,600

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Working Note 1 - Calculation of desired ending inventory
For July                      [Next month sales x 20% = August sales x 20% = 34,000 x 20%] 6,800 units
For August                  [Next month sales x 20% = September sales x 20% = 40,000 x 20%] 8,000 units
For September            [Next month sales x 20% = October sales x 20% = 36,000 x 20%] 7,200 units

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Working Note 2 - Beginning inventory
For July          [Ending inventory for June = Next month sales x 20% = July sales x 20% = 30,500 x 20%] 6,100 units
For August       [Ending inventory for July] 6,800 units
For September   [Ending inventory for August] 8,000 units

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