Question at position 4 Masde Corporation produces and sells Product CharlieD. To guard against stockouts, the company requires that 25% of the next month's sales be on hand at the end of each month. Budgeted sales of Product CharlieD over the next four months are: [table]
| June | July | August | September Budgeted sales in units | 40,000 | 60,000 | 50,000 | 80,000
[/table] Budgeted production for August would be: 77,000 units107,000 units57,500 units80,000 units

Question

Question at position 4  Masde Corporation produces and sells Product CharlieD. To guard against stockouts, the company requires that 25% of the next month's sales be on hand at the end of each month. Budgeted sales of Product CharlieD over the next four months are: [table]
| June | July | August | September Budgeted sales in units | 40,000 | 60,000 | 50,000 | 80,000
[/table] Budgeted production for August would be: 77,000 units107,000 units57,500 units80,000 units

BlackTom AI · Accepted Answer

To tackle this problem, I will first restate the setup and the policy to frame the calculations clearly.
Masde Corporation plans to keep 25% of the next month’s budgeted sales as ending inventory at the end of each month. The budgeted sales are: June 40,000; July 60,000; August 50,000; September 80,000.
Now, determine the production for August. Start with the inventory policy: ending inventory in July must be 25% of August sales, ending inventory in August must be 25% of September sales, and so on.
- End of July inventory (to support August sales): 0.25 × August sales = 0.25 × 50,000 = 12,500 units.
- End of August inventory (to support September sales): 0.25 × September sales = 0.25 × 80,000 = 20,000 units.
Next, apply the budgeting equation for August production: Beginning inventory for August + Production in August = Budgeted sales in August + Ending inventory in August.
Rearranging: Production in August = Budgeted sales in August + Ending inventory (August) − Beginning inventory (August).
The beginning inventory for August is the end of July inventory, which is 12,500 units. Therefore:
Production (August) = 50,000 + 20,000 − 12,500 = 57,500 units.
Now let’s evaluate each option:
- Option: 77,000 units
This would imply a much higher production level than needed. If you plug 77,000 into the budget equation, the resulting ending inventory would be inconsistent with the required 20,000 units (0.25 × 80,000) for September, or it would force an unusual beginning inventory; the numbers do not align with the stated policy and the known August sales figure.
- Option: 107,000 units
Similarly, 107,000 is well above the calculated need. It would imply creating a surplus inventory beyond what is needed to cover August sales and to fund the required ending inventory, again misaligning with the policy and the August–September flow.
- Option: 57,500 units
This matches the inventory policy and the flow of goods: it uses 50,000 of August sales and builds 20,000 ending inventory, while starting with 12,500 in beginning inventory, giving exactly the required August production to satisfy both sales and ending inventory targets.
- Option: 80,000 units
Producing 80,000 would leave a mismatch: it would exceed the calculated need by 22,500 units, leading to an ending inventory higher than the required 20,000 or to an incorrect beginning inventory assumption, violating the 25% rule for the next month’s sales.
In summary, the calculation aligns with the production formula: August production equals August sales plus August-ending inventory minus July-ending inventory. The numbers yield 50,000 + 20,000 − 12,500 = 57,500, which is the option that coheres with the policy and the provided budgeted sales."

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