Question

A company provided the following information on sales for the coming year: 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Units 50,000 60,000 40,000 90,000 Average selling price $6 $6 $6 $7 Assume that the beginning inventory is 4,000 units, and that the company policy is to have 30% of the next quarter's sales in ending inventory. Which of the following quarters will have the lowest production?
a.Quarter 1
b.Quarter 3
c.Quarter 4
d.Quarter 2
e.All quarters have the same production

Answer 1

Answer:

d.Quarter 2

Explanation:

In the given question:

Production in quarter 1

= sales in quarter 1 + 30% sales of quarter 2 - opening

= 50,000 + 30% $\times$ 60,000 - 4,000

= 50,000 + 18,000 - 4,000 = 64,000

Production in quarter 2

= Sales in quarter 2 + 30% sales in quarter 3 - opening

= 60,000 + 30% $\times$ 40,000 - 18,000

= 60,000 + 12,000 - 18,000 = 54,000

Production in quarter 3

= Sales in quarter 3 + 30% sales in quarter 4 - opening

= 40,000 + 30% $\times$ 90,000 - 12,000

= 40,000 + 27,000 - 12,000 = 55,000

Production in quarter 4

= Sales in quarter 4 - opening inventory

= 90,000 - 27,000 = 63,000