Feline Watch Company makes wrist watches out of silver metal sheets. Feline sold 200 watches in the month of June. It projects July and August sales to be 400 and 600 respectively. The company's policy is to have 50% of next month's sales in inventory. If the June ending inventory of watches is 200, how many watches must be produced in July?

In July, 500 watches should be produced.

Explanation:

The production requirement in a certain month should be such that it meets the remaining sales requirements for that month after accounting for sales that will be covered by the opening inventory and considering the budgeted sales for the next month and producing enough closing inventory as to meet the policy requirement of 50% of next month's sales.

The closing inventory required for July is,

Closing Inventory - July = 50% of August budgeted sales

Closing Inventory - July = 0.5 * 600 = 300 units

The production requirement for the period can be calculated as,

Production = Closing Inventory + Sales - Opening Inventory

Production = 300 + 400 - 200

Production = 500 units