Tannwin Co. sells a new product called Accountomatic and has predicted the following sales for the first four months of the current year:
$$\begin{array} { c c c c c }
& \text { Jan. } & \text { Feb. } & \text { March } & \text { April } \
\text { Sales in units } & 1,700 & 1,900 & 2,100 & 1,600
\end{array}$$
Ending inventory for each month should be 20% of the next month's sales, and the December 31 inventory is consistent with that policy. How many units should be purchased in the first quarter of the year?

Question

Tannwin Co. sells a new product called Accountomatic and has predicted the following sales for the first four months of the current year:
$$\begin{array} { c c c c c } 
& \text { Jan. } & \text { Feb. } & \text { March } & \text { April } \
\text { Sales in units } & 1,700 & 1,900 & 2,100 & 1,600
\end{array}$$
 Ending inventory for each month should be 20% of the next month's sales, and the December 31 inventory is consistent with that policy. How many units should be purchased in the first quarter of the year?

Quizplus · Accepted Answer

To calculate the units to be purchased, we need to consider the sales and the ending inventory policy. The ending inventory for each month is 20% of the next month's sales. Therefore, the ending inventory for January is 380 units (20% of 1,900), for February is 420 units (20% of 2,100), and for March is 320 units (20% of 1,600). The beginning inventory for January is 340 units (20% of 1,700, as per December 31 policy). The purchases for each month are calculated as: January: (1,700 + 380 - 340) = 1,740; February: (1,900 + 420 - 380) = 1,940; March: (2,100 + 320 - 420) = 2,000. Total purchases for the first quarter = 1,740 + 1,940 + 2,000 = 5,680 units.

Tannwin Co Ending Inventory for Each Month Should Be 20% of the Predicted