1. Arg, Inc. developed the following information to help you prepare alternative production budgets for a new. product. For all scenarios, planned starting inventory for the first month s 8,000 units. Planned sales in units are 60,000 in the first month, 65,000 in the second month, 70,000 an the third month, and 75,000 in the fourth month.
Required: Prepare three alternative production budgets for a recently introduced product for each of the first three months and a summary for the first quarter of the net fiscal year. Note that for each scenario, inventory would still be present at the start of the first month.
a. Prepare budgets assuming that management plans to end each month with inventory equal to 23% of the planned sales for the next month.
Briefly discuss when management would tend to favor option a (up to 1 page).
b. Prepare budgets assuming that management plans to end each month with no inventory.
Briefly discuss when management would tend to favor option b (up to 1 page).
c. Prepare budgets assuming that management plans to produce 67,000 units per month for this quarter, and let monthly ending inventory levels change. Make sure that your presentation shows the planned starting and ending inventory balances for each month and for the quarter.
Briefly discuss when management would tend to favor option c (up to 1 page).