Final answer:
To calculate the budgeted amount of purchases for February for Wallace Company, we determined the cost of goods sold, accounted for the target ending inventory for February, and adjusted for the actual beginning inventory. The calculation showed that the budgeted purchases for February would be $65,760.
Step-by-step explanation:
The question is asking to calculate the budgeted amount of purchases for the month of February for Wallace Company, using given sales data and inventory information. To determine the budgeted purchases, we first calculate the cost of goods sold (COGS) and then adjust for the desired ending inventory and the beginning inventory levels.
First, we calculate the cost of goods to be sold in February:
- February Sales are $108,000.
- Gross profit rate is 35%, so the cost of goods sold rate is 65% (100% - 35%).
- COGS for February = February Sales × COGS rate = $108,000 × 65% = $70,200.
Next, we calculate the desired ending inventory for February, which is the target beginning inventory for March:
- March Sales are $132,000.
- Target ending inventory = 20% of next month's (March's) sales at cost.
- Ending Inventory for February = 20% of March Sales at cost = 20% × $132,000 × 65% = $17,160.
Lastly, to find the total purchases for February, we adjust the COGS for the change in inventory levels:
- Ending Inventory for January (Beginning Inventory for February) = $21,600.
- Total Purchases = COGS for February + Ending Inventory for February - Beginning Inventory for February = $70,200 + $17,160 - $21,600 = $65,760.
Therefore, none of the provided options (A) $32,214, (B) $70,200, (C) $73,320, or (D) $95,160 match the calculated budgeted purchases for February which is $65,760.