Question

Budgeted sales of the East End Burger Joint for the first quarter of the year are as follows:January...................................................... $50,000February ..................................................... 60,000March ....................................................... 68,000 The cost of sales averages 40 percent of sales revenue and management desires ending inventories equal to 25 percent of the following month’s sales. Assuming the January 1 inventory is $5,000, the January purchases budget is: a. $19,000 b. $21,000 c. $31,000 d. $69,000

Answer 1

b. $21,000

Step-by-step explanation:

Calculation to determine what January purchases budget is

PURCHASES BUDGET

Requirements for January $20,000

($50,000 x 0.40)

Add Desired January 31 inventory 6,000

($60,000 x 0.25 x 0.40)

Total requirements $26,000

($20,000+$6,000)

Less beginning inventory ($5,000)

January purchases budget $21,000

($26,000-$5,000)

Therefore January purchases budget is $21,000