Answer to Question #118979 in Accounting for Taulant

Question

Natural Company plans to sell 40,000 boxes of teabags during January. The company has 6,000 boxes on hand on January 1 and requires 15% of the next months' sales on hand at the end of the month. Budgeted sales for the month of February and March, are 35,000 and 45,000 boxes, respectively. Budgeted production for January would be:
a) 40,000 boxes
b) 35,000 boxes
c) 39,250 boxes
d) 40,750 boxes

Answer 1

Correct Answer(C): 39,250 boxes

Computation

Closing Inventory:

January: 15%*35,000 = 5,250

February:  15%*45,000 =6,750

Opening Inventory

January: 6,000

February: 5,250 (closing inventory for January)

Budgeted production = Sales + Closing Inventory – Opening Inventory

Budgeted production (January) = 40,000 + 5,250 – 6,000

Budgeted production (January) = 39,250