This answer results from using 231,525 units as the September 30 ending inventory. 231,525 units is the number of units the company expects to sell in October according to the expected growth rate. However, the desired monthly ending inventory is 80% of the next month's estimated sales, not 100% of the next month's estimated sales.
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This question covers a three month period beginning July 1 and ending September 30. Beginning inventory in July is 150,000 finished units. The desired monthly ending inventory in units of finished product is 80% of the next month's estimated sales. According to the expected sales growth rate, the company plans to sell 210,000 units (200,000 × 105%) in August, 220,500 units (210,000 × 105%) in September and 231,525 units (220,500 × 105%) in October. Thus, ending inventory in September will need to be 185,220 units (231,525 × 80%). During July, August and September sales are forecasted to be 630,500 units (200,000 + 210,000 + 220,500). Now we can calculate the number of units that need to be produced: Beginning Inventory + Units Produced ? Units Sold = Ending Inventory 150,000 + Units Produced ? 630,500 = 185,220. Solving for Units Produced, Units Produced = 665,720.
This is the expected sales for the next three months. See the correct answer for a complete explanation.
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