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 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 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 March?

Quizplus · Accepted Answer

To calculate the budgeted inventory purchases for March, we first determine the cost of goods sold (COGS) for each month by multiplying the sales by 70% (since COGS is 70% of sales). Then, we calculate the ending inventory for each month, which is 40% of the next month's COGS. Finally, we use the formula for budgeted inventory purchases: COGS for the month + Desired ending inventory - Beginning inventory.1. Calculate COGS for each month:   - January: $100,000 * 70% = $70,000   - February: $150,000 * 70% = $105,000   - March: $180,000 * 70% = $126,000   - April: $200,000 * 70% = $140,0002. Calculate ending inventory (which is 40% of the next month's COGS):   - January: $105,000 * 40% = $42,000   - February: $126,000 * 40% = $50,400   - March: $140,000 * 40% = $56,0003. Calculate budgeted inventory purchases for March:   - COGS for March: $126,000   - Desired ending inventory for March: $56,000 (40% of April's COGS)   - Beginning inventory for March: $50,400 (February's ending inventory)Budgeted inventory purchases for March = COGS for March + Desired ending inventory for March - Beginning inventory for March= $126,000 + $56,000 - $50,400 = $131,600

Walker Entertainment Is a Distributor of Video Games and Expects