Question

At the beginning of 2018, Midway Hardware has an inventory of $310,000. Because sales growth was strong during 2018, the owner wants to increase inventory on hand to $360,000 at December 31, 2018. If net sales for 2018 are expected to be $2,100,000, and the gross profit rate is expected to be 25%, compute the cost of the merchandise the owner should expect to purchase during 2018.

Answer 1

$1,625,000

Step-by-step explanation:

For computing the purchase amount first we have to determine the cost of goods sold which is shown below;

As we know that

Cost of goods sold = Sales revenue - gross profit

= $2,100,000 - $2,100,000 × 25%

= $2,100,000 - $525,000

= $1,575,000

Now the purchase amount is

Cost of goods sold = Beginning inventory + purchase - ending inventory

$1,575,000 = $310,000 + purchase - $360,000

So, the purchase amount is $1,625,000