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A company manufactures and sells a single product.
At the end of the process all units are inspected and 20% are rejected and scrapped.
Next yr the budgeted sales are 384,000 and the inv. of finished units will increase by 4,000 units.What is next yrs budgeted production that will be subject to inspection?
Correct Answer is 485,000 units
Me method:
384,00 + 4000 = 388,000
388,000 / 80% = 485,000 (here me getting the answer but having no idea how I’ve done it)Can someone explain the logic of why we have to divide by 80% please?
Suppose you produce 100 units.
If 20% are rejected, then only 80 will end up being ready for sale.Or, to put it the other way round, if 80 are available for sale, then 100 must have been produced.
Here, they need 388,000 available for sale, and therefore 388,000 x 100/80 must have been produced.
(Because this is the Ask the Tutor Forum, the ‘someone’ is me because I am the tutor 🙂 )
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