Question

In May 2017, the budget committee of Grand Stores assembles the following data in preparation of budgeted merchandise purchases for the month of June.

1. Expected sales: June $501,000, July $601,000.

2. Cost of goods sold is expected to be 75% of sales.

3. Desired ending merchandise inventory is 30% of the following (next) month’s cost of goods sold.

4. The beginning inventory at June 1 will be the desired amount.

Answer 1

The beginning inventory at June 1 will be the desired: $112,725

Step-by-step explanation:

Expected Cost of goods sold in June = 75% x $501,000 = $375,750

Expected Cost of goods sold in July = 75% x $601,000 = $450,750

Ending merchandise inventory of May = 30% x Cost of goods sold in June

= 30% x $375,750 = $112,725

$112,725 is the desired amount of the beginning inventory at June 1

Ending merchandise inventory of June = 30% x Cost of goods sold in July

= 30% x $450,750 = $135,225

$135,225 is the desired amount of the beginning inventory at July 1