Question

Stritch Company is trying to decide how many units of merchandise to order each month. The company's policy is to have 20% of the next month's sales in inventory at the end of each month. Projected sales for August, September, and October are 30,000 units, 20,000 units, and 40,000 units, respectively. How many units must be purchased in September?

a. 14,000.
b. 20,000.
c. 22,000.
d. 24,000.
e. 28,000.

Answer 1

The number of units to be purchased in September are 24000 units.

Step-by-step explanation:

Based on the company's policy, the ending inventory for August or the Opening inventory for September will be 20% of September's sales.

Thus, the opening inventory is 0.2 * 20000 = 4000 units

The purchases for September should be equal to cover the Sales requirements for September along with having a closing Inventory equal to 20% of October sales.

Purchases - September = Sales requirements for September + Closing Inventory for September - Opening Inventory for September

Purchases - September = 20000 + 0.2 * 40000 - 4000

Purchases - September = 24000 units