Question

marty's merchandise has budgeted sales as follows for the second quarter of the year: april $ 30,000 may $ 60,000 june $ 50,000 cost of goods sold is equal to 70% of sales. the company wants to maintain a monthly ending inventory equal to 120% of the cost of goods sold for the following month. the inventory on march 31 was below this target and was only $22,000. the company is now preparing a merchandise purchases budget for april, may, and june. the budgeted purchases for may are:

Answer 1

The budgeted purchases for May for Marty's Merchandise is $31,600.

How are the budgeted purchases determined?

Budgeted purchases are the difference between the cost of goods available for sale and the beginning inventory.

The cost of goods available for sale can be computed in two ways.

Firstly, it can be computed as the sum of f beginning inventory and purchases or production.

Secondly, it can be computed as the sum of the ending inventory and the cost of goods sold.

Ending inventory = 120% of the Cost of goods sold

Ending inventory for March = $22,000

Cost of goods sold = 70% of sales

                                       April        May         June

Budgeted sales         $30,000  $60,000  $50,000

Cost of goods sold    $21,000   $42,000  $35,000

Ending inventory      $50,400   $42,000

Cost of goods available

for sale                     $71,400   $82,000

Beginning inventory 22,000     50,400

Budgeted purchases                $31,600

Thus, using some computations, the budgeted purchases for May are $31,600.

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