Walker Entertainment is a distributor of video games and expects its video game sales to be as follows for the first 4 months of 2017: $$\begin{array} { l l }
\text { January } & \$ 100,000 \
\text { February } & \$ 150,000 \
\text { March } & \$ 180,000 \
\text { April } & \$ 200,000
\end{array}$$ 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 2017: $$\begin{array} { l l } 
\text { January } & \$ 100,000 \
\text { February } & \$ 150,000 \
\text { March } & \$ 180,000 \
\text { April } & \$ 200,000
\end{array}$$ 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 the budgeted inventory purchases for February, first determine the cost of goods sold (COGS) for February, which is 70% of February's sales ($150,000 * 70% = $105,000). Then, calculate the ending inventory for February, which is 40% of March's COGS (March sales $180,000 * 70% = $126,000 COGS, so 40% of $126,000 = $50,400). The beginning inventory for February is the ending inventory of January, which is 40% of February's COGS ($105,000 * 40% = $42,000). The formula for inventory purchases is: Purchases = COGS + Ending Inventory - Beginning Inventory. For February, this is $105,000 + $50,400 - $42,000 = $113,400.

Walker Entertainment Is a Distributor of Video Games and Expects