Olga's Company has a sales budget for next month of $150,000. Cost of goods sold is expected to be 40 percent of sales. All goods are purchased in the month used and paid for in the month following purchase. The beginning inventory of merchandise is $5,000, and an ending inventory of $6,000 is desired. Beginning accounts payable is $38,000.
How much merchandise inventory will Olga's need to purchase next month?

Question

Quizplus · Accepted Answer

To calculate the merchandise inventory Olga's needs to purchase next month, first determine the cost of goods sold (COGS) which is 40% of sales, so $150,000 * 40% = $60,000. Then, calculate the desired ending inventory plus COGS minus beginning inventory: $6,000 + $60,000 - $5,000 = $61,000.

Olga's Company Has a Sales Budget for Next Month of $150,000