Question

A. Harrison Company produces hats for golfers. The company's projected sales for April are 15,000 hats. March sales were less than expected, so the company had 1,800 hats remaining in inventory at the end of March. Harrison prefers to maintain a 5 percent inventory of the next month's sales. Expected sales for May are 14,000 hats. How many hats should the company plan to produce in April?

a. 15,700

b. 15,000

c. 13,900

d. 17,500

B. Tea lovers produce herbal teas. The company expects to sell 125,000 boxes of tea during 2009. The company had 10,000 tea boxes on hand at the beginning of 2009. The sales budget calls for the company to sell 120,000 boxes of tea in 2010. If the company has a policy of maintaining an inventory of 10 percent of the boxes needed for the next year's expected sales, how many boxes must be purchased during 2009?

a. 125,000

b. 127,000

c. 137,000

d. It cannot be provided for the information provided

C. Refer to Question B. above. If each tea box costs $0.27, what is the total projected cost of the tea boxes for 2009?

a. $33,750

b. $34,290

c. $36,990

d. It cannot be determined from the information provided.

Answer 1

Ans. A	Option c    13,900
	Particulars	April
	Expected units to be sold	15000
	Add: Desired ending inventory units	700
	Total required units	15700
	Less: Beginning inventory units	-1800
	Units to be produced	13900
	*Beginning inventory of current month April = Ending inventory of previous month March = 1,800
	*Ending inventory = Sales units of May * 5%
	14,000 * 5%
	700 hats
Ans. B	Option b    127,000
	Particulars	2009
	Expected units to be sold	125000
	Add: Desired ending inventory units	12000
	Total required units	137000
	Less: Beginning inventory units	-10000
	Units to be purchased	127000
	*Ending inventory = Sales units of 2010 * 10%
	120,000 * 10%
	12000 boxes
Ans. C	Option b    $34,290
	Total cost of tea boxes = Units to be purchased * Cost per box
	127,000 * $0.27
	$34,290