Tiny Toons distributes cartoon DVDs that sell for $12 each. Tiny Toons pays $7 per DVD to buy the product. Selling costs of $1 per unit are incurred to deliver the DVDs to the customer. This is paid in cash when the product is sold. Tiny Toons has $50,000 per month in fixed selling and administrative expenses (including $3,000 in depreciation), which are paid half in the month incurred and half in the next month. It is Tiny's policy to maintain an inventory at the end of each month equal to 30% of the next month's projected unit sales.
Tiny Toons makes 30% of sales in cash, and the remainder are on credit. Credit sales are collected in the month after sale. Budgeted monthly sales for the first five months of 2014 are: $$\begin{array} { l l }
\text { January } & 20,000 \text { units } \
\text { February } & 22,000 \text { units } \
\text { March } & 26,000 \text { units } \
\text { April } & 28,000 \text { units } \
\text { May } & 40,000 \text { units }
\end{array}$$
How much are budgeted inventory purchases during February?

Question

Tiny Toons distributes cartoon DVDs that sell for $12 each. Tiny Toons pays $7 per DVD to buy the product. Selling costs of $1 per unit are incurred to deliver the DVDs to the customer. This is paid in cash when the product is sold. Tiny Toons has $50,000 per month in fixed selling and administrative expenses (including $3,000 in depreciation), which are paid half in the month incurred and half in the next month. It is Tiny's policy to maintain an inventory at the end of each month equal to 30% of the next month's projected unit sales.
Tiny Toons makes 30% of sales in cash, and the remainder are on credit. Credit sales are collected in the month after sale. Budgeted monthly sales for the first five months of 2014 are: $$\begin{array} { l l } 
\text { January } & 20,000 \text { units } \
\text { February } & 22,000 \text { units } \
\text { March } & 26,000 \text { units } \
\text { April } & 28,000 \text { units } \
\text { May } & 40,000 \text { units }
\end{array}$$
How much are budgeted inventory purchases during February?

Quizplus · Accepted Answer

To calculate the budgeted inventory purchases for February, we need to determine the number of units to be purchased. The ending inventory for February should be 30% of March's sales, which is 30% of 26,000 units = 7,800 units. The beginning inventory for February is 30% of February's sales, which is 30% of 22,000 units = 6,600 units. Therefore, the units to be purchased in February are the February sales (22,000 units) plus the desired ending inventory (7,800 units) minus the beginning inventory (6,600 units), resulting in 23,200 units. The cost per unit is $7, so the total cost is 23,200 units * $7 = $162,400.

Tiny Toons Distributes Cartoon DVDs That Sell for $12 Each