A firm has 43 units of a certain product on hand. Forecasts for the first two planning periods are 20 units each. A production quantity of 80 units is planned to be available in period 3. Customer orders are 22 for period 1 and 17 for period 2. What is the projected on hand inventory at the end of period 2?
A. 21
B. 1
C. 12
D. 20
E. 4
The correct answer and explanation is :
To determine the projected on-hand inventory at the end of period 2, we follow these steps:
Given Data:
- Initial Inventory: 43 units
- Forecasted Demand:
- Period 1: 20 units
- Period 2: 20 units
- Customer Orders:
- Period 1: 22 units
- Period 2: 17 units
- Planned Production: 80 units in period 3 (not relevant for period 2 calculations)
Step-by-Step Calculation:
Period 1:
- Available Inventory at the Start = 43
- Customer Orders = 22 (since customer orders typically take priority over forecasted demand)
- Ending Inventory after Period 1 =
[
43 – 22 = 21
]
Period 2:
- Beginning Inventory = 21 (from Period 1 ending)
- Customer Orders = 17
- Ending Inventory after Period 2 =
[
21 – 17 = 4
]
Final Answer:
The projected on-hand inventory at the end of period 2 is 4 units.
Correct Answer: E. 4
Explanation:
Projected on-hand inventory is calculated by tracking how much stock is available at the start of each period and subtracting the actual demand (customer orders).
- The company starts with 43 units in inventory.
- In period 1, 22 units are shipped to fulfill customer orders. Since orders are lower than forecasted demand (20), we only subtract 22 from inventory, not the full 20 units forecast.
- This leaves 21 units at the end of period 1.
- In period 2, customer orders are 17 units, so we subtract that from 21, leaving us with 4 units in inventory at the end of period 2.
Thus, the correct answer is 4 units (Option E).