Question

New Energy Incorporated has a beginning inventory balance on January 1 of 15,000 units and desires an ending balance of 20% of the next month’s sales. If sales are expected to be 18,000 for January and 25,000 for February, what is the ending balance as of January 31

Answer 1

The ending balance for January's inventory is calculated as 20% of February’s expected sales. With February’s sales expected to be 25,000 units, the ending inventory for January is therefore 5,000 units.

Step-by-step explanation:

New Energy Incorporated wishes to maintain an ending inventory balance equivalent to 20% of the subsequent month's sales. The calculation for the ending balance on January 31 will be based on 20% of February's expected sales.

To find the ending inventory balance for January, we use the sales prediction for February:

• Desired ending balance for January = 20% of February's sales.
• February's expected sales = 25,000 units.
• Desired ending balance = 25,000 units × 20%.
• Desired ending balance = 5,000 units.

Therefore, the ending inventory as of January 31 is 5,000 units.