The formula for inventory is: Beginning Inventory + Units Produced (or Purchased) ? Units Sold = Ending Inventory. If you have any 3 of those numbers, you can calculate the 4th number. Here, we have beginning inventory, sold units, and ending inventory. We also know that 10% of all units produced are not usable. Beginning inventory = 470 Units sold = 6,300 Ending inventory = 590 The calculation of good units to be produced can be accomplished with a simple linear equation, following the inventory formula above: 470 + X ? 6,300 = 590 X = 6,420 6,420 is the number of good units that are needed. However, the question asks how many units should be produced , taking into consideration the fact that 10% of the units produced will be defective. The equation to calculate how many units need to be produced in order to result in 6,420 good units after the bad units have been thrown away is: .90X = 6,420 X = 7,133
This answer results from incorrectly calculating the total production required in order to compensate for the 10% that do not pass final inspection. To adjust for the defective units, it is necessary to divide the number of good units needed by .90 instead of multiplying the number of good units needed by 1.10.
This covers the sales forecast as well as the desired ending inventory but forgets about the beginning inventory and also the fact that 10% of production will not pass inspection. See the correct answer for a full explanation.
This calculation incorrectly assumes that all of the units to be sold as well as the required units in ending inventory will need to be produced this year. However, 470 of those units are already complete. The first step is to determine the good units that need to be produced, then adjust for the 10% that will be spoiled. In this calculation, the 10% spoilage was factored into the equation prior to subtracting the beginning inventory. See the correct answer for a complete explanation.
|
