Dave's Mirror Company expects to sell $1,000,000 worth of mirrors and to produce $1,250,000 worth of mirrors in the coming year. The company purchases $300,000 worth of new equipment during the year. Sales for the year turn out to be $900,000. Actual investment by Dave's Mirror Company equals ________ and planned investment equals ________.
A)$250,000; $150,000
B)$300,000; $200,000
C)$550,000; $450,000
D)$650,000; $550,000

Question

Quizplus · Accepted Answer

Actual investment is planned investment plus unplanned investment. Planned investment includes the planned increase in inventory (planned production minus expected sales, or $1,250,000 − $1,000,000 = $250,000)and the purchase of new equipment ($300,000), which sum to $550,000. Unplanned investment is the unexpected increase in inventory, which is equal to the amount by which actual sales fall short of expected sales, or $1,000,000 − $900,000 = $100,000.

Dave's Mirror Company Expects to Sell $1,000,000 Worth of Mirrors