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4 January, 16:52

Sheffield Corp. estimates its sales at 150000 units in the first quarter and that sales will increase by 15000 units each quarter over the year. They have, and desire, a 25% ending inventory of current quarter's sales in units. Each unit sells for $35. 40% of the sales are for cash. 70% of the credit customers pay within the quarter. The remainder is received in the quarter following sale. Production in units for the third quarter should be budgeted at:

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  1. 4 January, 16:55
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    183,750

    Explanation:

    Data provided in the question:

    Sales in the first quarter = 150,000 units

    Increase in sales each quarter = 15000 units

    Ending inventory = 25% of the current sales units

    Now,

    Ending inventory of first quarter = 25% of Units produced in the first quarter

    = 0.25 * 150,000

    = 37,500

    Units produced in the first quarter = Sales + Ending inventory of first quarter

    = 150,000 + 37,500

    = 187,500

    Units to be produced in the second quarter

    = Sales in second quarter - Ending inventory of first quarter + Ending inventory

    = [ 150,000 + 15,000 ] - 37,500 + 25% of [ 150,000 + 15,000 ]

    = 165,000 - 37,500 + 41,250

    = 168,750

    Units to be produced in the Third quarter

    = Sales in third quarter - Ending inventory of second quarter + Ending inventory

    = [ 150,000 + 15,000 + 15,000 ] - 41,250 + 25% of [ 150,000 + 15,000 + 15,000 ]

    = 180000 - 41,250 + 45,000

    = 183,750
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