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Date Posted: 08:37:31 02/01/02 Fri
Author: Dr. D.
Subject: Re: Chapter 3 Assignment 3.1 page 87?
In reply to: Marilyn Whittaker 's message, "Chapter 3 Assignment 3.1 page 87?" on 16:27:55 01/29/02 Tue

I'll take these one at a time
>
>The ending inventory each month is supposed to be the
>inventory used for that month. If COGS is beginning
>inventory + materials purchased - ending inventory how
>can each month's income statement be the amount of
>inventory used?

What this means is that at the end of January, he must have inventory on hand equal to January sales. In other words, if Jan. sales were 2,000 units, he must purchase enough inventory so that he has 2,000 units in inventory at the end of January. So, his purchases in January must be such that he has an ENDING inventory of 2,000 units.

>The book even goes on to say that "Dirk's inventory
>policy is a one month supply. That is, at the end of
>January he wants to have in inventory a number of
>units equal to what he sold in January. In January
>Dirk sold 2000 packages. Thus he wants to have 2000
>packages in inventory at the END OF THE MONTH. That
>would mean that beginning inventory IN February would
>be 2000.

Absolutely correct. However, here's how you use this info to get END of February balance.
In the example on page 69, he sold 3,000 packages in february. So, he must have 3,000 packages in inventory as of the end of February. Since he had 2,000 units at the beginning of February, he would have had
(-1,000) units at the end of the month if he hadb't purchased any. Therefore, since he needed to have 3,000 units at the end, he must purchase 4,000 in February.

Hope this helps. If not, let me know

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