Chestnut Corporation has budgeted sales as follows:
April: $400,000
May: $360,000
June: $440,000
July: $520,000
Chestnut's gross margin is 20% of sales and their desired inventory levels are 40% of the next month's cost of goods sold. How much are Chestnut's budgeted inventory purchases for the month of June?

Question

Quizplus · Accepted Answer

To calculate the budgeted inventory purchases for June, first determine the cost of goods sold (COGS) for June: $440,000 * (1 - 0.20) = $352,000. Then, calculate the desired ending inventory for June, which is 40% of July's COGS: $520,000 * (1 - 0.20) * 0.40 = $166,400. The beginning inventory for June is 40% of June's COGS: $352,000 * 0.40 = $140,800. Finally, calculate the purchases: $352,000 + $166,400 - $140,800 = $377,600.

Chestnut Corporation Has Budgeted Sales as Follows