Memphis Company's May sales budget calls for sales of $900,000. The store expects to begin May with $50,000 of inventory and to end the month with $55,000 of inventory. Gross margin is typically 45% of sales. Compute the budgeted cost of merchandise purchases for May.

Question

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The budgeted cost of merchandise purchases is calculated as follows:Budgeted cost of merchandise purchases = (Beginning inventory + Budgeted sales - Ending inventory) / Gross margin percentage= ($50,000 + $900,000 - $55,000) / 45%= $895,000 / 45%= $495,000

Memphis Company's May Sales Budget Calls for Sales of $900,000