Schrank 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?

Question

Quizplus · Accepted Answer

To determine how many units must be purchased in September, we need to first calculate the desired inventory level at the end of September.

For September: 
Desired inventory level = 20% x 20,000 (October sales) = 4,000 units

Next, we need to determine the number of units that will be in inventory at the end of August:

Inventory at end of August = 20% x 30,000 (August sales) = 6,000 units

Therefore, the number of units that need to be ordered in September is:

Units to be purchased = Desired inventory level - Inventory already in stock 
Units to be purchased = 4,000 - 6,000 = -2,000

This means that the company already has 2,000 more units in inventory than it needs, so it does not need to order any more units of merchandise in September.

The correct answer is C, 24,000.

Schrank Company Is Trying to Decide How Many Units of Merchandise