Ron's Desk Company expects to sell $10,000,000 worth of desks and to produce $10,500,000 worth of desks in the coming year.The company purchases $100,000 of new equipment during the year.Sales for the year turn out to be $9,000,000.Actual investment by Ron's Desk Company equals _______ and planned investment equals _______.

Question

Quizplus · Accepted Answer

Actual investment includes both planned investment and unplanned changes in inventory. Planned investment is the purchase of new equipment, $100,000. The company produced $10,500,000 worth of desks but sold only $9,000,000, resulting in an unplanned inventory increase of $1,500,000. Therefore, actual investment is $100,000 (planned) + $1,500,000 (unplanned) = $1,600,000. Planned investment is $100,000 (equipment purchase) + $500,000 (planned inventory increase) = $600,000.

Ron's Desk Company Expects to Sell $10,000,000 Worth of Desks