O'Hare Company is in the process of preparing a purchases budget for the first quarter of Year 2. The company has budgeted sales as follows: $\begin{array}{lc}
\text { Dec. Year 1 } & \$ 44,000 \
\text { Jan. Year 2 } & \$ 46,500 \
\text { Feb. Year 2 } & \$ 51,000 \
\text { Mar. Year 2 } & \$ 61,500
\end{array}$ Cost of goods sold is expected to be 75% of sales. The company would like to have ending inventory each month equal to 25% of the following month's predicted cost of sales. The total cost of purchases in January Year 2 is:

Question

Quizplus · Accepted Answer

The correct answer is A. The total cost of purchases in January Year 2 is $35,719. This can be calculated as follows:**January Purchases** = February Cost of Goods Sold - January Ending Inventory**February Cost of Goods Sold** = 75% x February Sales = 75% x $51,000 = $38,250**January Ending Inventory** = 25% x February Cost of Goods Sold = 25% x $38,250 = $9,563**January Purchases** = $38,250 - $9,563 = $35,719

O'Hare Company Is in the Process of Preparing a Purchases