Question

At the beginning of 2018, Midway Hardware has an inventory of $400,000. Because sales growth was strong during 2018, the owner wants to increase inventory on hand to $450,000 at December 31, 2018. If net sales for 2018 are expected to be $1,600,000, and the gross profit rate is expected to be 35%, compute the cost of the merchandise the owner should expect to purchase during 2018.

Answer 1

Inventory Purchases Required = $1,090,000

Step-by-step explanation:

given data

inventory = $400,000

increase inventory = $450,000

net sales = $1,600,000

gross profit rate = 35%

solution

we know that cost of goods sold is = Sales- Gross Profit ................1

so

cost of goods sold is = $1,600,000 - ( $1,600,000 × 35% )

cost of goods sold is $1,040,000

and

Inventory Purchases Required = cost of goods sold + Required Inventory -Opening Inventory ........................2

Inventory Purchases Required = $1,040,000 + $450,000 - $400,000

Inventory Purchases Required = $1,090,000