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Waterloo, Ltd. manufactures a component used in aircraft navigation systems. Demand has been strong and the executive...

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Accounting

Waterloo, Ltd.manufactures a component used in aircraft navigation systems.Demand has been strong and the executive staff at Waterloo isplanning for next year. Yesterday, you were called into a budgetingmeeting where production plans are being reviewed. You learn thatthe inventory policy at Waterloo is to hold one and one-halfmonths’ worth of sales (to avoid issues with transportationdisruptions). The sales budget for next year is 660,000 units,spread evenly over the year. Because of an unexpected increase indemand, inventory at the end of this year is expected to be only30,000 units. The capacity of the plant is 700,000 unitsannually.

Required:

a.What production level next year will be required to meet thetargets? (Do not round intermediatecalculations.)

Answer & Explanation Solved by verified expert
4.4 Ratings (575 Votes)

  • This year ending inventory is expected to be 30000 units which will be Beginning inventory for next year.
  • Desired ending inventory for next year = Yearly sales x 1.5 months / 12 months = 660000 x 1.5/12 = 82500 units
  • Answer

Budgeted Year sales

                     660,000

Add: Desired ending Inventory

                       82,500

Total needs

                     742,500

Less: Beginning inventory for next year

                       30,000

Production level for next year

                     712,500 = Answer

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