question 1 production budget 461038
The following table presents Generic Motors Company’s production budget. GM’s inventory policy is to have ending inventory equal to20% of next month’s sales.
| February | March | April | |
| Ending inventory | 5,000 | ||
| Beginning inventory | 2,000 | ||
| Budgeted sales | 13,000 | 17,000 | 18,000 |
| Budgeted production |
Required:
(a) Fill in the missing numbers in the table above.
(Hint if you get stuck: What is the relation between ending inventory for one month and beginning inventory for the following month?)
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b) Why do firms want to hold inventory of finished goods? (an alternative could be to produce exactly the amount they are going to sell, and hold zero inventories)
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