The January 1, 2017, inventory of HD-240 is 2,040 units. Management desires an ending inventory each quarter equal to 40% of the next quarter’s sales. Sales in the first quarter of 2018 are expected to be 25% higher than sales in the same quarter in 2017. Prepare quarterly production budgets for each quarter and in total for 2017.

Explanation:

Management desires an ending inventory each quarter equal to 40% of the next quarter’s sales so the closing inventory 2040 is the 40% of 1st quarter 2017 (Jan-Mar).

40% = 2040

Reverse the 40% in to 100 to find the 100% forecasted sales for QTR-1

we have:

100% = 2040/40%

100% = 5100 is the 1st quarter sale

40% ending inventory = 2040

Total production for quarter-1 = 5100+2040 = 7140

Total production for quarter-2 = 5100+2040 = 7140

Total production for quarter-3 = 5100+2040 = 7140

production for the first three quarter will remain the same but in 4th quarter it will change because the sale for the qrt-1 of 2018 is expected to be increased by 25%, so the production of Qrt-4 of 2017 is as follows:

will multiply the total quarterly sales with 1.25 i.e 100+25%

Quarter-4 sale = 5100*1.25 = 6375

closing inventory 40%=6375*40% = 2550

Qrt-4 production = Quarter-4 sale = 5100 +2550

Qrt-4 production = 7650

Total production for 2017 =  7140+7140+7140+7650

Total production for 2017 = 29070

a

explanation:

reducti0n

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