Johnson Inc.produces leather handbags.Johnson Inc.estimates it will use 3,500 square meters of leather in production in August,and 3,750 square meters of leather in production in September.Johnson Inc.'s leather inventory policy is 30% of next month's production needs.What will leather purchases be in August?

Question

Quizplus · Accepted Answer

Johnson Inc. plans to use 3,500 square meters of leather in August and needs to have 30% of September's production needs (3,750 square meters) in inventory at the end of August. 30% of 3,750 is 1,125 square meters. Therefore, the total leather needed for August is the sum of the leather for production in August (3,500 square meters) and the inventory requirement for the end of August (1,125 square meters), totaling 4,625 square meters. However, since the question asks for the leather purchases in August, we must subtract the inventory at the beginning of August, which is 30% of August's production needs (30% of 3,500 = 1,050 square meters), from the total leather needed. Thus, the purchases in August are 4,625 - 1,050 = 3,575 square meters.