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Fosnight Enterprises prepared the following sales budget: The expected gross profit rate is 30% and the inventory at the end of February was $10,000. Desired inventory levels at the end of the month are 20% of the next month's cost of goods sold. What is the desired beginning inventory on June 1?

2 Answers

4 votes

Final answer:

Since the sales figures for June and July aren't provided, we can't calculate the desired beginning inventory for June 1. Instead, we review the calculation of accounting profit, which is $50,000 in the example provided.

Step-by-step explanation:

The desired beginning inventory on June 1 is the amount of inventory that Fosnight Enterprises wants to have at the start of the month to meet the planned sales for June, while maintaining a certain percentage of the next month's cost of goods sold as ending inventory for June. Since we do not have the actual sales figures for June and July, we cannot calculate this figure. However, we can discuss a related accounting concept using the provided self-check question.

The self-check question asks for the calculation of a firm's accounting profit, which is defined as total revenues minus explicit costs. In the given example, the firm had sales revenue of $1 million, and it spent $600,000 on labor, $150,000 on capital, and $200,000 on materials. The accounting profit would therefore be $1,000,000 (total revenues) - ($600,000 (labor) + $150,000 (capital) + $200,000 (materials)) = $50,000.

User LamdaComplex
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3.4k points
3 votes

Answer:

$1,960

Step-by-step explanation:

Complete Questin:

Fosnight Enterprises prepared the following sales budget:

Month Budgeted Sales

March $6,000

April $13,000

May $12,000

June $14,000

The expected gross profit rate is 30% and the inventory at the end of February was $10,000. Desired inventory levels at the end of the month are 20% of the next month's cost of goods sold. What is the desired beginning inventory on June 1?

Sales = 100% – 30%

Gross Profit = 70%

Cost of Goods Sold (CGS)

Therefore, June Sales= $14,000 × 70%

= 9,800 (CGS) × 20%

= $1,960

User EJ Campbell
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3.6k points