Production budget The firm's inventory policy is to have ending inventory equal to 10% of next month's sales. Fill in the missing numbers. February March April Ending inventory 5,000 Beginning inventory Budgeted sales 8,000 16,000 14,000 Budgeted production (If you get stuck on the beginning inventory for February: it is equal to the ending inventory for January, which you can compute with the available data on February sales)
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?)
(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)