Sarah owns a small jewelry booth at a local flea market, and she is in the process of creating a Cost of Goods Sold budget for the month of July of this year. She has collected information from her past records and notes that her Merchandise Inventory Balance for the end of June is $220. She will be purchasing 1,000 units from a supplier at a price of $0.42 per unit. She believes her Ending Merchandise Inventory will be $98. What is Sarah's Cost of Goods Sold budget for July?

Question

Quizplus · Accepted Answer

The formula needed to calculate the Budgeted Cost of Goods Sold is Beginning Merchandise Inventory plus Purchases minus Ending Merchandise Inventory. In this question, first note that the Ending Balance of Merchandise Inventory for June becomes the Beginning Balance of Merchandise Inventory for July. In Sarah's case she starts with her Beginning Merchandise Inventory of $220, then adds her Purchases of $420 ($0.42 per unit x 1,000), and finally subtracts her Ending Inventory of $98 to arrive at a Budgeted Cost of Goods Sold of $542.

Sarah Owns a Small Jewelry Booth at a Local Flea