Final answer:
The projected on hand inventory formula is (Beginning Inventory + Purchases) - (Sales - Ending Inventory). It is essential for managing inventory levels and financial planning in businesses, particularly about budgeting and income-spend matching.
Step-by-step explanation:
The correct formula for projected on-hand inventory is option 2:
(Beginning Inventory + Purchases) - (Sales - Ending Inventory)
This formula helps businesses project the amount of inventory they will have on hand at the end of a given period. The formula begins with the Beginning Inventory (the amount of inventory held at the start of the period) and adds all Purchases (additional inventory bought during the period). It then subtracts Sales (inventory sold during the period) and adds the Ending Inventory (the expected amount of inventory remaining at the end of the period).
Understanding inventory levels is critical for effective budgeting and financial planning, which can be expressed using the budget equation stated as Budget = P₁ × Q₁ + P2 × Q₂, where P represents the price and Q represents the quantity of items purchased. The goal is to match the budget with income constraints, ensuring corporate profits are correctly adjusted for inventory and capital consumption.