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 March?

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 March?

Quizplus · Accepted Answer

Ending inventory for February is 40% of March's cost of goods sold. March's cost of goods sold is 70% of March's sales, which is $180,000 * 0.70 = $126,000. Therefore, ending inventory for February is $126,000 * 0.40 = $50,400.Budgeted inventory purchases for March are equal to the cost of goods sold for March plus the ending inventory for March minus the ending inventory for February. The cost of goods sold for March is $180,000 * 0.70 = $126,000. The ending inventory for March is 40% of April's cost of goods sold, which is $200,000 * 0.70 * 0.40 = $56,000. Therefore, budgeted inventory purchases for March are $126,000 + $56,000 - $50,400 = $131,600.

Walker Entertainment Is a Distributor of Video Games and Expects