Argyle Company forecasts sales of $50 000 in January, $60 000 in February, $70 000 in March, and $75 000 in April. The inventory balance at 1 January is $12 000. Cost of sales is budgeted at 40% of sales revenue. Argyle wishes to have inventory levels at the end of each month equal to 60% of the cost of sales for the following month, plus a "safety cushion" of $1 000. How much should be budgeted for inventory purchases in January?
A)$23 400
B)$26 400
C)$22 100
D)$21 000

Question

Quizplus · Accepted Answer

The correct answer is A.The budgeted cost of sales for February is $60,000 x 40% = $24,000. The desired ending inventory for February is $24,000 x 60% + $1,000 = $15,400. The beginning inventory for February is $12,000. Therefore, the budgeted inventory purchases for January must be $15,400 - $12,000 = $23,400.

Argyle Company Forecasts Sales of $50 000 in January, $60