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Hi Sir, please help me to answer the question below.
A company manufactures and sells a single product. and the end of the process all units are inspected and 20% are rejected and scrapped. Next year the budgeted sales are 384000 and the inventory of finished units will increase by 4000 units.
What is next years budgeted production that will be subject to inspection?My answer is 388000 units and it was wrong. The correct answer was 485000 units!
So why?If 20% are rejected, then for every 100 units produced, 20 are rejected and therefore only 80 are good units.
Putting it the other way round, for every 80 good units they need to produce 100 units.
So to end up with 388,000 good units, they need to produce 100/80 x 388,000 = 485,000 units.
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