Question

Bombs Away Video Games Corporation has forecasted the following monthly sales:

January	\(100,000
February	\)93,000
March	\(25,000
April	\)25,000
May	\(20,000
June	\)35,000
July	\(45,000
August	\)45,000
September	\(55,000
October	\)85,000
November	\(105,000
December	\)123,000
Total annual sales	\(756,000

Bombs Away Video Games sells the popular Strafe and Capture video games. It sells for \)5 per unit and costs $2 per unit to produce. A level production policy is followed. Each month’s production is equal to annual sales (in units) divided by 12.

Of each month’s sales, 30 percent are for cash and 70 percent are on account. All accounts receivable are collected in the month after the sale is made.

a. Construct a monthly production and inventory schedule in units. Beginning inventory in January is 25,000 units. (Note: To do part a, you should work in terms of units of production and units of sales.)

Short answer

The ending inventory in January and December is 17,600 units and 25,000 units, respectively.

Step-by-step solution

Working notes

1. $\begin{array}{rcl}\mathit{U}\mathit{n}\mathit{i}\mathit{t}\mathit{s}\mathbf{}\mathit{p}\mathit{r}\mathit{o}\mathit{d}\mathit{u}\mathit{c}\mathit{e}\mathit{d}& \mathbf{=}& \frac{\mathbf{T}\mathbf{o}\mathbf{t}\mathbf{a}\mathbf{l}\mathbf{}\mathbf{a}\mathbf{n}\mathbf{n}\mathbf{u}\mathbf{a}\mathbf{l}\mathbf{}\mathbf{s}\mathbf{a}\mathbf{l}\mathbf{e}\mathbf{s}}{\mathbf{P}\mathbf{r}\mathbf{i}\mathbf{c}\mathbf{e}\mathbf{}\mathbf{p}\mathbf{e}\mathbf{r}\mathbf{}\mathbf{u}\mathbf{n}\mathbf{i}\mathbf{t}}\\ & \mathbf{=}& \frac{\mathbf{\$}\mathbf{756}\mathbf{,}\mathbf{000}}{\mathbf{\$}\mathbf{5}}\\ & \mathbf{=}& \mathbf{151}\mathbf{,}\mathbf{200}\mathbf{}\mathit{u}\mathit{n}\mathit{i}\mathit{t}\mathit{s}\end{array}$

2. $\begin{array}{rcl}\mathit{M}\mathit{o}\mathit{n}\mathit{t}\mathit{h}\mathit{l}\mathit{y}\mathbf{}\mathit{u}\mathit{n}\mathit{i}\mathit{t}\mathit{s}\mathbf{}\mathit{p}\mathit{r}\mathit{o}\mathit{d}\mathit{u}\mathit{c}\mathit{e}\mathit{d}& \mathbf{=}& \frac{\mathbf{T}\mathbf{o}\mathbf{t}\mathbf{a}\mathbf{l}\mathbf{}\mathbf{n}\mathbf{u}\mathbf{m}\mathbf{b}\mathbf{e}\mathbf{r}\mathbf{}\mathbf{o}\mathbf{f}\mathbf{}\mathbf{u}\mathbf{n}\mathbf{i}\mathbf{t}\mathbf{s}\mathbf{}\mathbf{p}\mathbf{r}\mathbf{o}\mathbf{d}\mathbf{u}\mathbf{c}\mathbf{e}\mathbf{d}\mathbf{}\mathbf{i}\mathbf{n}\mathbf{}\mathbf{a}\mathbf{}\mathbf{y}\mathbf{e}\mathbf{a}\mathbf{r}}{\mathbf{N}\mathbf{u}\mathbf{m}\mathbf{b}\mathbf{e}\mathbf{r}\mathbf{}\mathbf{o}\mathbf{f}\mathbf{}\mathbf{m}\mathbf{o}\mathbf{n}\mathbf{t}\mathbf{h}\mathbf{s}}\\ & \mathbf{=}& \frac{\mathbf{151}\mathbf{,}\mathbf{200}}{\mathbf{12}}\\ & \mathbf{=}& \mathbf{12}\mathbf{,}\mathbf{600}\mathbf{}\mathit{u}\mathit{n}\mathit{i}\mathit{t}\mathit{s}\end{array}$

3. $\mathit{N}\mathit{u}\mathit{m}\mathit{b}\mathit{e}\mathit{r}\mathit{s}\mathbf{}\mathit{o}\mathit{f}\mathbf{}\mathit{u}\mathit{n}\mathit{i}\mathit{t}\mathit{s}\mathbf{}\mathit{s}\mathit{o}\mathit{l}\mathit{d}\mathbf{=}\frac{\mathbf{M}\mathbf{o}\mathbf{n}\mathbf{t}\mathbf{h}\mathbf{l}\mathbf{y}\mathbf{}\mathbf{s}\mathbf{a}\mathbf{l}\mathbf{e}\mathbf{s}}{\mathbf{\$}\mathbf{5}}$

4.$\mathit{E}\mathit{n}\mathit{d}\mathit{i}\mathit{n}\mathit{g}\mathbf{}\mathit{i}\mathit{n}\mathit{v}\mathit{e}\mathit{n}\mathit{t}\mathit{o}\mathit{r}\mathit{y}\mathbf{=}\mathit{B}\mathit{e}\mathit{g}\mathit{i}\mathit{n}\mathit{n}\mathit{i}\mathit{n}\mathit{g}\mathbf{}\mathit{i}\mathit{n}\mathit{v}\mathit{e}\mathit{n}\mathit{t}\mathit{o}\mathit{r}\mathit{y}\mathbf{+}\mathit{P}\mathit{r}\mathit{o}\mathit{d}\mathit{u}\mathit{c}\mathit{t}\mathit{i}\mathit{o}\mathit{n}\mathbf{-}\mathit{S}\mathit{a}\mathit{l}\mathit{e}\mathit{s}$

Production and inventory schedule

Month	Beginning inventory	Production	Sales	Ending inventory
January	25,000	12,600	20,000	17,600
February	17,600	12,600	18,600	11,600
March	11,600	12,600	5,000	19,200
April	19,200	12,600	5,000	26,800
May	26,800	12,600	4,000	35,400
June	35,400	12,600	7,000	41,000
July	41,000	12,600	9,000	44,600
August	44,600	12,600	9,000	48,200
September	48,200	12,600	11,000	49,800
October	49,800	12,600	17,000	45,400
November	45,400	12,600	21,000	37,000
December	37,000	12,600	24,600	25,000