Asian Lamp Company Sales and Production Budget

How many lamps should be produced in October?

a. 9,500 lamps

b. 10,000 lamps

c. 14,000 lamps

d. 10,500 lamps

Answer:

Option d, 10,500 lamps.

Budgeted for ending finished goods inventory is 25% of sales for the next month. Asian Lamp expects to sell the lamps for $25 each, with January sales projected at 16,000 lamps. In October, 10,500 lamps should be manufactured.

The sales estimate and the anticipated amount of finished goods inventory to be on hand are combined to create the production budget, which determines the number of products that must be made. The following formula is used in the production budget to estimate how many units will be produced during a certain period:

Production budget = Budgeted sales units - Opening finished goods stock + Closing finished goods stock.

Budgeted Production for October:

Budgeted Sales units for October: 10,000

Add: Desired ending inventory units: 3,500

Total requirement: 13,500

Less: Desired Beginning Inventory: 3,000

The budgeted Production units in October: 10,500