Carson Inc., a retail establishment, expects sales of $500,000 of a particular item in March. Its gross profit percentage is 60 percent. The ending inventory in February of this item cost $40,000 and the company wants an ending inventory of $38,000 (cost). How much needs to be purchased?

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Quizplus · Accepted Answer

To calculate the purchase amount, first determine the cost of goods sold (COGS). With a gross profit percentage of 60%, the cost percentage is 100% - 60% = 40%. Thus, COGS = 40% of $500,000 sales = $200,000. Next, apply the formula: Required Purchases = COGS + Desired Ending Inventory - Beginning Inventory. Plugging in the numbers: Required Purchases = $200,000 + $38,000 - $40,000 = $198,000.