Deal is a product of the Digby company. Digby's sales forecast for Deal is 1853 units. Digby wants to have an extra 10% of units on hand above and beyond their forecast in case sales are better than expected. (They would risk the possibility of excess inventory carrying charges rather than risk lost profits on a stock out.) Taking current inventory into account, what will Deal's Production After Adjustment have to be in order to have a 10% reserve of units available for sale

Question

Layton Dalton

Business

13 January, 01:46

Deal is a product of the Digby company. Digby's sales forecast for Deal is 1853 units. Digby wants to have an extra 10% of units on hand above and beyond their forecast in case sales are better than expected. (They would risk the possibility of excess inventory carrying charges rather than risk lost profits on a stock out.) Taking current inventory into account, what will Deal's Production After Adjustment have to be in order to have a 10% reserve of units available for sale

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Helen Rice · Answer 1

The excess inventory stock is the amount of the units produced more than the demand of the product as a caution. For this a formula is used.

Answer: Production units = Sales * (1 + reserve percentage)

1853 * (1 + 10%) = 2038 units.

Explanation:

To have an excess inventory of the product Deal by the Digby company, the company has to make some extra units of the product. This is used as a caution in case forecast of the sales are better than the expected and that excess demand can be met.

The formula for excess inventory is:

Production units = Sales * (1 + Reserve percentage)

1853 * (1 + 10%) = 2038.

This is the amount of units the company should produce.