Sales Quantity Calculation

Discussion in 'General Accountancy Discussion' started by turabamin, Apr 12, 2018.

  1. turabamin

    turabamin

    Joined:
    Apr 12, 2018
    Messages:
    5
    Likes Received:
    0
    1. Production per year: 350 days
    2. Production capacity @100% : 1000 Units
    3. Capacity utilization in 2017: 90% and in 2018: 92%
    4. Work in progress days: 2 days
    5. Finished goods inventory: 10 days

    Assuming except WIP and finished goods inventory, all of the production will be sold, what would be sales quantity in 2017 and 2018?
     
    turabamin, Apr 12, 2018
    #1
    1. Advertisements

  2. turabamin

    Becky Administrator

    Joined:
    Aug 26, 2011
    Messages:
    455
    Likes Received:
    45
    Is this a study question?

     
    Becky, Apr 13, 2018
    #2
    1. Advertisements

  3. turabamin

    turabamin

    Joined:
    Apr 12, 2018
    Messages:
    5
    Likes Received:
    0
    No, the question i have asked here is from my financial modeling works. The issue here is that some ppl in my office use (350-2)= 348 days to calculate closing finished goods inventory while some other use 350 days for the same. I am a bit confused here and so i asked the question.
     
    turabamin, Apr 13, 2018
    #3
  4. turabamin

    Steve-LevelUp VIP Member

    Joined:
    Jul 18, 2016
    Messages:
    173
    Likes Received:
    20
    It might be easier for you to post your model here and we can look at the formulas that you have populated. If you ignore WIP and FG and just calculate based on utilization, then you can work back from that.
     
    Steve-LevelUp, Apr 15, 2018
    #4
  5. turabamin

    turabamin

    Joined:
    Apr 12, 2018
    Messages:
    5
    Likes Received:
    0
    There are two groups in my office, who calculate the answers of the problem in two different ways.

    First way (for first year)

    Production for 350 days: 900 Units
    Closing WIP for 2 days: 5.143 Units =[2*(900/350)]
    Total finished goods production: 894.86 units=(900-5.143)
    Closing finished goods inventory for 10 days: 25.567 units=[10*(894.86/350)]
    Sales quantity for first year: 869.293 units =(894.86-25.567)

    Second way ( for first year)

    Production for 350 days: 900 Units
    Closing WIP for 2 days: 5.143 Units =[2*(900/350)]
    Total finished goods production: 894.86 units=(900-5.143)
    Closing finished goods inventory for 10 days: 25.714 units=[10*(894.86/348)]
    Sales quantity for first year: 869.146 units =(894.86-25.714)

    Now my question is which way is correct?
     
    turabamin, Apr 15, 2018
    #5
  6. turabamin

    Steve-LevelUp VIP Member

    Joined:
    Jul 18, 2016
    Messages:
    173
    Likes Received:
    20
    So, two questions.

    Are you able to sell a fraction of a unit?

    What does your sales report tell you that you sold? Eg, look at the 2017 sales and the compare to see which one is correct.
     
    Steve-LevelUp, Apr 15, 2018
    #6
  7. turabamin

    turabamin

    Joined:
    Apr 12, 2018
    Messages:
    5
    Likes Received:
    0
    Answer 1: for the simplicity of calculation we assume that we can

    Answer 2: Forgot to mention that this is for a financial modeling which is completely based on projection. Though I mentioned 2017 as first year, kindly consider that this would happen in future. Actually this is a past model which has some miscalculation and I am working on to correct them
     
    turabamin, Apr 15, 2018
    #7
  8. turabamin

    Steve-LevelUp VIP Member

    Joined:
    Jul 18, 2016
    Messages:
    173
    Likes Received:
    20
    Well, going of simplicity, given both give the same number, then either would work.

    As for financial modelling, you did mention that it was for 2017 and 2018. Given 2017 is over, you can compare your model to actual to determine if it was correct. the point of a model is for it to accurately predict actuals. So, get the 2017 actuals and build a model that replicates the actual real sales.
     
    Steve-LevelUp, Apr 15, 2018
    #8
  9. turabamin

    turabamin

    Joined:
    Apr 12, 2018
    Messages:
    5
    Likes Received:
    0
    Sales figures are in million. So i think figures after decimal matter. can you just tell which of the two ways is correct? for finished goods inventory calculation, should the divisor be 350 or 348?

    Since it is a financial model, end users only care about NPV, IRR and PBP results. And this model was built in 2016 and now it is being updated. Initially starting year of the model was 2017 but management has decided to start the business in 2020. So previous starting year 2017 will be replaced with 2020.

    Thanks a lot for your time.
     
    turabamin, Apr 15, 2018
    #9
  10. turabamin

    Steve-LevelUp VIP Member

    Joined:
    Jul 18, 2016
    Messages:
    173
    Likes Received:
    20
    I would use 350 days.
     
    Steve-LevelUp, Apr 16, 2018
    #10
    1. Advertisements

Ask a Question

Want to reply to this thread or ask your own question?

You'll need to choose a username for the site, which only take a couple of moments (here). After that, you can post your question and our members will help you out.