Trago Company manufactures a single product and has a JIT policy that ending inventory must equal 5% of the next month's sales.It estimates that May's ending inventory will consist of 14,000 units.June and July sales are estimated to be 280,000 and 290,000 units,respectively.Compute the number of units to be produced in June.

A) 290,000.
B) 294,500.
C) 280,500.
D) 280,000.
E) 266,000.

Question

Michael Cifelli · Accepted Answer

Final Answer : C, Explanation :  To compute the number of units to be produced in June, we need to consider the sales for June, the desired ending inventory for June, and the beginning inventory for June. The ending inventory for June should be 5% of July's sales, which is 5% of 290,000 = 14,500 units. The beginning inventory for June is the ending inventory for May, which is 14,000 units. Therefore, the units to be produced in June = June sales + June ending inventory - June beginning inventory = 280,000 + 14,500 - 14,000 = 280,500 units.

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