Norton Company prepared the following sales budget:
$$\begin{array} { | l | l | }
\hline \text { Month } & \text { Budgeted Sales } \
\hline \text { March } & \$ 200,000 \
\hline \text { April } & \$ 180,000 \
\hline \text { May } & \$ 220,000 \
\hline \text { June } & \$ 260,000 \
\hline
\end{array}$$ The expected gross profit rate is 40% and the inventory at the end of February was $36,000. Desired inventory levels at the end of the month are 30% of the next month's cost of goods sold. What is the desired beginning inventory on June 1?

Question

Norton Company prepared the following sales budget:
$$\begin{array} { | l | l | } 
\hline \text { Month } & \text { Budgeted Sales } \
\hline \text { March } & \$ 200,000 \
\hline \text { April } & \$ 180,000 \
\hline \text { May } & \$ 220,000 \
\hline \text { June } & \$ 260,000 \
\hline
\end{array}$$ The expected gross profit rate is 40% and the inventory at the end of February was $36,000. Desired inventory levels at the end of the month are 30% of the next month's cost of goods sold. What is the desired beginning inventory on June 1?

Quizplus · Accepted Answer

To find the desired beginning inventory on June 1, we first calculate the cost of goods sold (COGS) for June. Since the gross profit rate is 40%, the cost rate is 60% (100% - 40%). The budgeted sales for June are $260,000, so the COGS for June is 60% of $260,000 = $156,000. The desired inventory level at the end of May (beginning of June) is 30% of June's COGS, which is 30% of $156,000 = $46,800.

Norton Company Prepared the Following Sales Budget The Expected Gross Profit Rate Is 40% and the Inventory