The following table presents Generic Motors Company's production budget. GM's inventory policy is to have ending inventory equal to20% of next month's sales. February March April
Ending inventory 5,000
Beginning inventory 2,000
Budgeted sales 13,000 17,000 18,000
Budgeted production
Required:
a) Fill in the missing numbers in the table above.
(Hint if you get stuck: What is the relation between ending inventory for one month and beginning inventory for the following month?)
b) Why do firms want to hold inventory of finished goods? (an alternative could be to produce exactly the amount they are going to sell, and hold zero inventories)

a.

February__March__April

Ending inventory 20% of next Months sale_3400___3600__5,000

Beginning inventory 2,000__ 3400__ 3600

Budgeted sales 13,000__17,000_ 18,000

Budgeted production 14,400__ 17,200_ 19,400

b.

Firms wants to hold the finished goods inventry in order to deal with the future demand

Explanation:

a.

Use the following formula to calculate the Budgeted production

Budgeted Production = Beginning Inventory - Ending Inventory + Busgeted Sales

Working

February__March__April

Ending inventory 20% of next Months sale_3400___3600__5,000

Less: Beginning inventory2,000__ 3400__ 3600

Add: Budgeted sales 13,000__17,000_ 18,000

= Budgeted production14,400__ 17,200_ 19,400

b.

The finished goods inventory is held to deal with the future market demand. If the firm produce the uniits equals o the current demand then in case of increase in demand or unexpected demand increase the firms will not be able to fulfil the demand and will lose the opportunity.

answer; i believe that the correct answer is ( owners investment)

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