Question

At the beginning of 2018, England Dresses has an inventory of $75,000. However, management wants to reduce the amount of inventory on hand to $35,000 at December 31. If net sales for 2018 are forecast at $220,000 and the gross profit rate is expected to be 22%, compute the cost of the merchandise which management should expect to purchase during 2018. (Hint: First compute the expected cost of goods sold.)

Answer 1

The cost of the merchandise which management should expect to purchase during 2018: $131,600

Step-by-step explanation:

Net sales for 2018 are forecast at $220,000 and the gross profit rate is expected to be 22%.

The expected Gross profit = 22% x $220,000 = $48,400

The expected Cost of goods sold = Net sales - The expected Gross profit = $220,000 - $48,400 = $171,600

The cost of the merchandise expected to purchase during 2018 = Inventory on hand at December 31 + The expected Cost of goods sold in 2018 - Inventory at the beginning of 2018 = $35,000 + $171,600 - $75,000 = $131,600

Answer 2

$136600

Step-by-step explanation:

Given:

• inventory of $75,000
• amount of inventory on hand to $35,000
• net sales for 2018 at $220,000
• gross profit rate: 22%

We need to find the gross profit via the given information of net sales and gross profit rate

<=> gross profit = net sales*gross profit rate

= $220,000* 22%

= $48,400

Moreover, Cost of goods sold is = sales - gross profit

<=> Cost of goods sold = $220,000 - $48,400 = $171,600

But Cost of goods sold = opening inventory + purchases - closing inventory

<=> purchases = Cost of goods sold - opening inventory + closing inventory

= $171,600 - $75,000 + ($75,000 - $35,000)

= $136600