Walker Entertainment is a distributor of video games and expects its video game sales to be as follows for the first 4 months of 2014: $$\begin{array} { l l }
\text { January } & \$ 100,000 \
\text { February } & \$ 150,000 \
\text { March } & \$ 180,000 \
\text { April } & \$ 200,000
\end{array}$$ Walker's cost of goods sold is 70% of sales. Ending inventory is expected to equal 40% of the next month's cost of goods sold. How much are budgeted inventory purchases for February?

Question

Walker Entertainment is a distributor of video games and expects its video game sales to be as follows for the first 4 months of 2014: $$\begin{array} { l l } 
\text { January } & \$ 100,000 \
\text { February } & \$ 150,000 \
\text { March } & \$ 180,000 \
\text { April } & \$ 200,000
\end{array}$$ Walker's cost of goods sold is 70% of sales. Ending inventory is expected to equal 40% of the next month's cost of goods sold. How much are budgeted inventory purchases for February?

Quizplus · Accepted Answer

To calculate February's budgeted inventory purchases:  1. Calculate February's COGS: $150,000 * 70% = $105,000.  2. Calculate March's COGS: $180,000 * 70% = $126,000.  3. Ending inventory for February = 40% of March's COGS = $126,000 * 40% = $50,400.  4. Beginning inventory for February = 40% of February's COGS = $105,000 * 40% = $42,000.  5. Purchases = Ending inventory + COGS - Beginning inventory = $50,400 + $105,000 - $42,000 = $113,400.

Walker Entertainment Is a Distributor of Video Games and Expects