Needed information to be calculated is beginning inventory for February, sales for February and ending inventory for February. These are needed in units in order to calculate purchases for February. The inventory equation is Beginning Inventory + Purchases ? Sales = Ending Inventory. When any three of these amounts are available or can be calculated, the fourth amount can always be calculated. This equation can be used with either monetary amounts or number of units. Here we have monetary amounts and will convert it to number of units using the product price of $20 per unit. The beginning inventory for February will depend upon February sales. February sales can be calculated from the cash receipts given as $66,000 + $44,000, or $110,000. $110,000 in sales divided by the $20 price per unit = 5,500 units sold during February. Beginning inventory for February will be 30% of 5,500, or 1,650 units. Ending inventory for February will be based on the number of sales in March, which is $150,000 divided by $20, or 7,500 units. Ending inventory for February will be 30% of 7,500, or 2,250 units. The number of units to be purchased in February, using the inventory equation, will be: 1,650 + X ? 5,500 = 2,250 X = 6,100 units
This answer assumes that beginning inventory was zero. Beginning inventory should be 30% of February's sales, or 1,650 units.
This answer assumes that ending inventory is zero. Ending inventory should be 30% of March sales, or 2,250.
This calculation has all of the numbers correct but it reverses the beginning inventory and ending inventory balances in the inventory equation. The inventory equation is Beginning Inventory + Purchases ? Sales = Ending Inventory.
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Other information includes the following: Inventories are maintained at 30% of the following month's sales. Assume that March sales total $150,000. The number of units to be purchased in February is