Bengal Co. provides the following sales forecast for the next three months: July August September Sales units 5,400 6,100 5,960 The company wants to end each month with ending finished goods inventory equal to 20% of the next month's sales. Finished goods inventory on June 30 is 1,080 units. The budgeted production units for July are:

a. 6,480 units.
b. 4,320 units.
c. 6,620 units.
d. 2,160 units.
e. 5,540 units.

e. 5,540 units.

Explanation:

The computation of the budgeted production units for July month is shown below:

= Sales units + ending inventory units - beginning inventory units

where,

Sales units = 5,400 units

Ending inventory units = 6,100 units × 20% = 1,220 units

And, the beginning inventory units = 1,080 units

So by considering this, the production units is

= $5,400 + 1,220 units - 1,080 units

= 5,540 units

We simply applied the above formulas

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