To find the desired beginning inventory on June 1st, calculate the cost of goods sold for June, determine the desired ending inventory for June, and subtract the increase in inventory from the ending inventory at the end of May.
To determine the desired beginning inventory on June 1st, we need to calculate the cost of goods sold for the month of June. The cost of goods sold is the budgeted sales multiplied by the expected gross profit rate (40% of sales). So, the cost of goods sold for June would be $14,000 x 0.40 = $5,600.
Next, we need to calculate the desired ending inventory for June. This is 20% of the cost of goods sold for July, which is the next month. Since we don't have July's budgeted sales, we can use the average of May and June's sales as an estimate. So, the desired ending inventory for June would be ($12,000 + $14,000) / 2 x 0.20 = $2,400.
Finally, to find the desired beginning inventory on June 1st, we need to subtract the increase in inventory from the ending inventory at the end of May. The increase in inventory is the desired ending inventory for June minus the desired ending inventory for May. Given that the desired ending inventory for May is 20% of the cost of goods sold for June ($5,600 x 0.20 = $1,120), the increase in inventory is $2,400 - $1,120 = $1,280. Therefore, the desired beginning inventory on June 1st would be $10,000 + $1,280 = $11,280.
Complete Question:
Sander Enterprises prepared the following sales budget: Month: Budgeted Sales March: $8,000 April: $13,000 May: $12,000 June: $14,000 The expected gross profit rate is 40% and the inventory at the end of February was $10,000. Desired inventory levels at the end of the month are 20% of the next month's cost of goods sold. a. What is the desired beginning inventory on June 1st?