Question

Ecology Co. sells a biodegradable product called Dissol and has predicted the following sales for the first four months of the current year: Jan. Feb. March April Sales in units 1,700 1,900 2,100 1,600 Ending inventory for each month should be 20% of the next month's sales, and the December 31 inventory is consistent with that policy. How many units should be purchased in February

Answer 1

Answer:

Purchases - February = 1940 units

Explanation:

To calculate the units to be purchased in February, we first need to calculate the opening and closing inventory for the month of February. We know that the closing inventory each month is equal to 20% of next month's sale, so we can calculate the closing inventory for January (which will be opening inventory for February) as,

Opening Inventory - February = 20% * 1900    => 380 units

We can also calculate the ending inventory for February by using the expected sales of March.

Closing Inventory - February = 20% * 2100    => 420 units

The purchases for February can be calculated as follows,

Units Sold = Opening inventory + Purchases - Closing Inventory

1900 = 380 + Purchases - 420

1900 + 420 - 380 = Purchases

Purchases = 1940 units