Question

Metro, Inc. sells backpacks. The Company's accountant is preparing the purchases budget for the first quarter operations. Metro maintains ending inventory at 20% of the following month's expected cost of goods sold. Expected cost of goods sold for April is $70,000.

Sales January February March Budgeted cost of goods sold $40,000 $50,000 $60,000 Plus: Desired ending inventory 10,000 Inventory needed 50,000 Less: Beginning inventory (8,000) Required purchases $42,000
Based on this information the total amount of expected purchases for February is_____________

Answer 1

The total amount of expected purchases for February is $54,000, calculated by adding February's budgeted cost of goods sold ($50,000) to the desired ending inventory for February (20% of April's expected cost of goods sold, which is $14,000), and then subtracting January's ending inventory ($10,000).

Step-by-step explanation:

The total amount of expected purchases for February for Metro, Inc. can be calculated using the information provided about expected cost of goods sold and desired ending inventory levels. First, we calculate the desired ending inventory for March by taking 20% of the April expected cost of goods sold, which is $70,000. So, 20% of $70,000 is $14,000. This $14,000 will be March's ending inventory and February's beginning inventory because the ending inventory of one month is the beginning inventory of the next month.

Now let's calculate the inventory needed for February:

1. Budgeted cost of goods sold for February: $50,000
2. Plus: Desired ending inventory for February (which is March's beginning inventory): $14,000
3. Total inventory needed for February: $64,000

Finally, to find February's required purchases:

1. Total inventory needed for February: $64,000
2. Less: Beginning inventory for February (which is January's ending inventory): $10,000 from the example
3. Required purchases for February: $54,000