Bioclean Co., a merchandiser, sells a biodegradable cleaning product and has predicted the following sales for the first four months of the current year: 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 February?
A) 2,000.
B) 2,420.
C) 2,020.
D) 1,600.
E) 2,820.

Question

Bioclean Co., a merchandiser, sells a biodegradable cleaning product and has predicted the following sales for the first four months of the current year:  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 February?
A) 2,000. 
B) 2,420. 
C) 2,020. 
D) 1,600. 
E) 2,820.

Quizplus · Accepted Answer

We can start with the given sales values and calculate the ending inventory for each month using the 20% rule as follows:

Jan: 1100 (given starting inventory) + 1800 (Feb sales x 120%) - 360 (20% of Mar sales) = 2540
Feb: 360 (20% of Mar sales) + 2220 (Mar sales x 120%) - 444 (20% of Apr sales) = 2712
Mar: 444 (20% of Apr sales) + 2664 (Apr sales x 120%) - 532.8 (20% of May sales) = 3059.2
Apr: 532.8 (20% of May sales) + 3192 (May sales x 120%) = 3931.2

The ending inventory of Apr becomes the starting inventory for May, which means the inventory on Dec 31 should also be 20% of the expected sales for Jan. Therefore, we can calculate the required purchases for Feb as follows:

Required purchase for Feb = Feb sales + Mar required ending inventory - Feb starting inventory
= 2220 + (2712 x 0.2) - 2540
= 2020

Therefore, the answer is (C) 2,020.