Caskill Company forecasts $40 000 of sales in January, $38 000 in February, $30 000 in March, and $32 000 in April. Cost of sales is budgeted at 75% of sales. Caskill should have inventory on hand at the end of each month equal to $5 000 plus 20% of the following month's cost of sales. How much are budgeted purchases for February?

Question

Quizplus · Accepted Answer

Budgeted purchases for February are calculated as: Ending inventory for February + Cost of sales for February - Beginning inventory for February. Ending inventory for February is $5,000 + 20% of March's cost of sales (20% of $22,500 = $4,500), totaling $9,500. Cost of sales for February is 75% of $38,000, which is $28,500. Beginning inventory for February is the ending inventory for January, which is $5,000 + 20% of February's cost of sales (20% of $28,500 = $5,700), totaling $10,700. Therefore, budgeted purchases for February are $9,500 + $28,500 - $10,700 = $27,300.

Caskill Company Forecasts $40 000 of Sales in January, $38