Question

Jared Inc. produces leather handbags. The sales budget for the next four months is: July 5,400 units, August 7,200, September 8,400, October 8,600. Each handbag requires 0.5 square meters of leather. Jared Inc.’s finished goods inventory policy is 10% of next month’s sales needs. Jared Inc.’s leather inventory policy is 30% of next month’s production needs. What will leather purchases be in August?

• 3,733 square meters

• 3,825 square meters

• 3,675 square meters

• 3,650 square meters

Answer 1

Answer: 3,825 square meters

Calculations:

Purchase requirement
	July	August	September	October
Sales (in units)	5,400	7,200	8,400	8,600
Add: Required Ending finished goods inventory [10% of next months' sales]	720	840	860
(less): Beginning finished goods inventory	-540	-720	-840
Total production required	5,580	7,320	8,420
x Requirement of leather inventory per unit	0.5	0.5	0.5
=Total requirement of leather inventory	2,790	3,660	4,210
Add: Required ending leather inventory [30% of next month's production]	1,098	1,263
(less): Beginning leather inventory		-1,098
Purchase requirement		3,825

Thus, Option ii is correct and remaining options are incorrect.