Jackson Inc.produces leather handbags.The production budget for the next four months is: July 5,000 units,August 7,000,September 7,500,October 8,000.Each handbag requires 0.5 square meters of leather.Jackson Inc.'s leather inventory policy is 30% of next month's production needs.On July 1 leather inventory was expected to be 1,000 square meters.What will leather purchases be in August?

Question

Quizplus · Accepted Answer

For August, Jackson Inc. needs 7,000 units * 0.5 square meters/unit = 3,500 square meters of leather for production. The inventory policy requires 30% of September's production needs to be in inventory at the end of August. September's production needs are 7,500 units * 0.5 square meters/unit = 3,750 square meters. Thus, 30% of 3,750 square meters = 1,125 square meters must be in inventory at the end of August. The total leather needed for August is the sum of the production needs (3,500 square meters) and the inventory requirement for the end of August (1,125 square meters), totaling 4,625 square meters. Subtracting the beginning inventory for August, which is the ending inventory for July (30% of August's production needs, or 30% of 3,500 square meters = 1,050 square meters), from this total gives the purchase requirement for August: 4,625 square meters - 1,050 square meters = 3,575 square meters.