Question

Chu Company provided the following information related to its inventory sales and purchases for December Year 1 and the first quarter of Year 2:

Dec. Year 1 Jan. Year 2 Feb. Year 2 Mar. Year 2
(Actual) (Budgeted) (Budgeted) (Budgeted)
Cost of goods sold $ 50,000 $ 80,000 $ 100,000 $ 70,000

Desired ending inventory levels are 35% of the following month's projected cost of goods sold. Budgeted purchases of inventory in February Year 2 would be:

Answer 1

Answer:

$89,500

Explanation:

The computation Budgeted purchases of inventory is shown below:-

February,opening inventory = $100,000 × 35%

= $35,000

Ending inventory = $70,000 × 35%

= $24,500

Cost of goods sold = Opening inventory + Purchase - Ending inventory

= $100,000 = $35,000 + Purchase - $24,500

Purchase = $89,500

Therefore for computing the purchase inventory we simply applied the above formula.