Question

A sales budget has been prepared for April. Management wants the amount of ending inventory each month to be equal to 10% of that month's cost of goods sold. Cost of goods sold for April is projected at $60,000. Ending inventory at the end of March is expected to be $12,000. Based on this information, what would the amount of purchases be for April?

1) $62,000
2) $48,000
3) $66,000
4) $54,000

Answer 1

The amount of purchases for April is calculated using the formula Purchases = COGS + Desired Ending Inventory - Beginning Inventory. Given a COGS of $60,000, desired ending inventory of 10% of COGS ($6,000), and a beginning inventory of $12,000, the purchases for April would be $54,000.

Step-by-step explanation:

The student's question relates to the calculation of purchases for the month of April based on given sales budget and inventory data. To find the purchase amount, we'll use the following formula: Purchases = Cost of Goods Sold (COGS) + Desired Ending Inventory - Beginning Inventory.

From the information provided, we know that:

- The Cost of Goods Sold (COGS) for April is projected at $60,000.

- The desired ending inventory for April is 10% of the COGS for April, which is 10% of $60,000 = $6,000.

- The ending inventory for March (which will be the beginning inventory for April) is $12,000.

Now, calculating the purchases for April, we get:

Purchases = $60,000 + $6,000 - $12,000 = $54,000.

Therefore, the amount of purchases for April would be $54,000, which corresponds to answer (4).