A company budgeted unit sales of 204,000 units for January, 2020 and 240,000 units for February 2020. The company has a policy of having an inventory of units on hand at the end of each month equal to 30% of next month's budgeted unit sales if there were 61,200 units of inventory on hand on December 31, 2019, how many units should be produced in January, 2020 in order for the company to meet its goals?

a. 214,800 units
b. 204,000 units
c. 193,200 units
d. 276,000 units

The correct answer is option (a).

Explanation:

According to the scenario, computation of the given data are as follow:-

Budgeted unit sales = 204,000 units

Opening stock = 61,200 units

Closing stock = 240,000 × 30% = 72,000 units

We can calculate the units should be produced by using following formula:-

Produced unit = Budgeted unit sales + Closing stock - Opening stock

= 204,000 + 72,000 - 61,200

= 214,800 units

Company should have produced 214,800 units in January, 2020 to meet its goal.  

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