LO 7.2Rehydrator makes a nutrition additive and expects to sell 3,000 units in January, 2,000 in February, 2,500 in March, 2,700 in April, and 2,900 in May. The required ending inventory is 20% of the next month's sales, and the beginning inventory on January 1 was 600 units. Prepare a production budget for the first four months of the year.

Instructions are below.

Explanation:

Giving the following information:

Sales in units:

January = 3,000

February = 2,000

March = 2,500

April = 2,700

May = 2,900

The required ending inventory is 20% of the next month's sales, and the beginning inventory on January 1 was 600 units.

The production budget for each month is calculated using the following formula:

Production = sales + desired ending inventory - beginning inventory

Production budget:

January:

Sales = 3,000

Ending inventory = (2,000*0.2) = 400

Beginning inventory = (600)

Total = 2,800

February:

Sales = 2,000

Ending inventory = (2,500*0.2) = 500

Beginning inventory = (400)

Total = 2,100

March:

Sales = 2,500

Ending inventory = (2,700*0.2) = 540

Beginning inventory = (500)

Total = 2,540

April:

Sales = 2,700

Ending inventory = (2,900*0.2) = 580

Beginning inventory = (540)

Total = 2,740