Budgeted Sales Question Accounting Need Help

Question

Frodic Corporation has budgeted sales and production over the next quarter as follows:

Sales in Units : September : 50,000 October : 54,000 November : ?

Production in Units : September : 50,400 October : 52,300 November : 56,650

Units of Product on Hand, September 1 : 5,000

Desired Ending Inventory : 10% of next month's sales

 

Budgeted Sales for November would be ?

 

A) 37,000 units B) 47,070 units C) 57,300 units D) 58,320 units E) None of the Above

 

Answer was A) but I need help with steps as to how.

 

Thanks.

Answer 1

The key to solving this problem is that the ending inventory for the month will be equal to 10% of the next month's sales.

 

So we start with 5,000 units on hand on September 1st (this amount was given). We produce 50400 units during the month of September (this amount is given in problem). If we add these two amounts together, we get 55400. This is the total number of units that we had available to sell during September. Of the 55400 units, we sold 50,000 of them during the month of September (this amount is given in problem). This means we are left with 5400 units as the ending inventory on the last day of September (55400 available minus 50000 units sold). Now according to the problem the ending inventory will be equal to 10% of the next months sales. We can see this is true. We had an ending inventory of 5400 in September and October's sales are 54000 units (this amount is given in problem). 

 

Now we move to October. We have 5400 units on hand (the ending inventory for September). We produce 52,300 units during October (this amount is given in problem). If you add those two amounts together you get 52300+5400=57700 units. These are the total number of units we have available to sell for October. According to the problem, we sold 54,000 of these units. This means we have 3700 units left at the end of October (57700-54000). 3700 units is therefore our ending inventory for the month of October. Well, again, according to the problem, the ending inventory is 10% of the next months sales. So 3700 is our ending inventory for October and this amount is 10% of the next months sales. This means November sales will be 37,000 (because 37,000*10%=3700 which is the ending inventory).

 

If this helps, please vote my answer up. If not, please let me know what further difficulties you are having and I will assist you.