Question

At the beginning of 2018, England Dresses has an inventory of $140,000. However, management wants to reduce the amount of inventory on hand to $80,000 at December 31. If net sales for 2018 are forecast at $400,000 and the gross profit rate is expected to be 40%, compute the cost of the merchandise which management should expect to purchase during 2018. (Hint: First compute the expected cost of goods sold.)

Answer 1

purchases = 160000

Step-by-step explanation:

given data

beginning inventory = $140,000

amount of inventory on hand = $80,000

net sales = $400,000

gross profit rate = 40%

solution

we first Computation of cost of goods sold hat is

Gross profit rate =
`(gross profit)/(net sales)` × 100

=
`(gross profit)/(400000)` = =
`(40)/(100)`

= 100 Gross profit = 16000000

so

Gross profit = 160000

and

Cost of goods sold is = sales - gross profit

so

Cost of goods sold = 400000 - 160000

Cost of goods sold = 240000

and

Cost of goods sold = opening inventory + purchases - closing inventory

so put here value

240000 = 140000 + purchases - 60000

so purchases = 160000