Waterloo, Ltd. manufactures a component used in aircraft navigation systems. Dem
ID: 2579396 • Letter: W
Question
Waterloo, Ltd. manufactures a component used in aircraft navigation systems. Demand has been strong and the executive staff at Waterloo is planning for next year. Yesterday, you were called into a budgeting meeting where production plans are being reviewed. You learn that the inventory policy at Waterloo is to hold one and one-half months’ worth of sales (to avoid issues with transportation disruptions). The sales budget for next year is 676,000 units, spread evenly over the year. Because of an unexpected increase in demand, inventory at the end of this year is expected to be only 46,000 units. The capacity of the plant is 716,000 units annually.
What production level next year will be required to meet the targets? (Do not round intermediate calculations.)
Explanation / Answer
Sales budget next year = 676000 units
closing stock next year = 676000*1.5 / 12 = 84500 units
opening stock for next year = inventory at the end of this year = 46,000 units
production level required = 676000 + 84500 - 46000 = 714500 units
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