Skymont Company wants an ending inventory each month equal to 25% of that month's cost of goods sold. Cost of goods sold for February is projected at $90,000. Ending inventory at the end of January was $18,000. Based on this information, purchases for February would be:

Question

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To calculate the purchases for February, first, determine the desired ending inventory for February, which is 25% of the cost of goods sold for February ($90,000 * 25% = $22,500). Next, calculate the total goods needed for February, which is the cost of goods sold plus the desired ending inventory ($90,000 + $22,500 = $112,500). Finally, subtract the beginning inventory (ending inventory of January, which is $18,000) from the total goods needed to find the purchases for February ($112,500 - $18,000 = $94,500).

Skymont Company Wants an Ending Inventory Each Month Equal to 25