Pinto Company has the following data: Cost of goods sold average 60% of sales.The inventory at December 31 was $19,440.Desired ending inventory levels are 30% of next month's sales at cost.What is the desired ending inventory value at February 28?
A)$23,760
B)$25,920
C)$39,600
D)$43,200

Question

Pinto Company has the following data:  Cost of goods sold average 60% of sales.The inventory at December 31 was $19,440.Desired ending inventory levels are 30% of next month's sales at cost.What is the desired ending inventory value at February 28?
A)$23,760 
B)$25,920 
C)$39,600 
D)$43,200

Quizplus · Accepted Answer

First, we need to calculate the cost of goods sold (COGS) for the next month, March.
If the inventory at December 31 was $19,440, then the cost of goods sold for the current month (January) was:

COGS = Sales x Cost of goods sold percentage 
COGS = x 60% =

We don't know the exact sales figure, but we do know that the desired ending inventory for February is 30% of March's sales at cost. Therefore, we can set up the following equation:

Desired Ending Inventory at Cost = 30% x Cost of Goods Sold for March

We can solve for the Cost of Goods Sold for March:

Cost of Goods Sold for March = Desired Ending Inventory at Cost ÷ 30%
Cost of Goods Sold for March = $25,920 ÷ 30%
Cost of Goods Sold for March = $86,400

Now we can calculate the desired ending inventory for February:

Desired Ending Inventory for February = 30% x Cost of Goods Sold for March - Inventory at December 31
Desired Ending Inventory for February = 30% x $86,400 - $19,440
Desired Ending Inventory for February = $25,920

Pinto Company Has the Following Data: Cost of Goods