A company has had stable sales and production for several years.Next year, sales are expected to increase by at least 50%.Assuming that the company maintains its policy for desired ending inventories of finished product and direct materials purchases, what will be the likely effect on the desired ending inventory of finished product?
A) It will increase
B) It will decrease
C) It will stay the same
D) It will be twice the size of the desired ending inventory of raw materials
E) None of these

Question

Quizplus · Accepted Answer

With an expected increase in sales, the company will need to produce and sell more finished products, resulting in an increase in the desired ending inventory of finished products. This is because the desired ending inventory of finished products is usually based on a percentage of expected sales, which will increase in this scenario.

A Company Has Had Stable Sales and Production for Several