Question

Skymont Company wants an ending inventory each month equal to 30% of that month's cost of goods sold. Cost of goods sold for February is projected at $45,000. Ending inventory at the end of January was $12,000. Based on this information, purchases for February would be:

a. $43,500.
b. $31,500.
c. $33,000.
d. $46,500.

Answer 1

To calculate the purchases for February, one must first find the required ending inventory for the month, add the cost of goods sold, and then subtract January's ending inventory. The calculation results in purchases of $46,500 for February. The correct option is d. $46,500.

Step-by-step explanation:

The Skymont Company desires an ending inventory that is 30% of the projected cost of goods sold for February, which amounts to $45,000.

To determine the purchase amount for February, we must calculate the required ending inventory for February and then add the cost of goods sold (to ensure all goods are available for sale), and subtract the ending inventory of January to find the needed purchases for February.

Here is the calculation:

• Ending inventory required for February = 30% of $45,000 = $13,500.
• Total goods required for February (Ending inventory + Cost of goods sold) = $13,500 + $45,000 = $58,500.
• Purchases for February = Total goods required - Ending inventory of January = $58,500 - $12,000 = $46,500.
• The correct option is d. $46,500.