Question

Montel Company’s July sales budget calls for sales of $550,000. The store expects to begin July with $57,000 of inventory and to end the month with $40,000 of inventory. Gross margin is typically 40% of sales. Determine the budgeted cost of merchandise purchases for July.

Answer 1

To determine the budgeted cost of merchandise purchases for July, subtract the ending inventory from the beginning inventory and add the cost of goods sold during the month. The gross margin is typically 40% of sales. The cost of merchandise purchases for July is $370,000.

Step-by-step explanation:

To determine the budgeted cost of merchandise purchases for July, we need to calculate the cost of goods sold (COGS). COGS is calculated by subtracting the ending inventory from the beginning inventory and adding the cost of goods sold during the month. In this case, the beginning inventory is $57,000, the ending inventory is $40,000, and the sales budget is $550,000. The formula for COGS is:

COGS = Beginning Inventory + Purchases - Ending Inventory

Since the gross margin is typically 40% of sales, we can calculate the cost of goods sold by:

COGS = (1 - Gross Margin) * Sales Budget

Let's calculate the COGS using this formula:

COGS = (1 - 0.4) * $550,000

COGS = $330,000

Now, we can calculate the cost of merchandise purchases for July by adding the COGS to the ending inventory:

Cost of Merchandise Purchases = COGS + Ending Inventory

Cost of Merchandise Purchases = $330,000 + $40,000

Cost of Merchandise Purchases = $370,000