Wallace Company provides the following data for next year:

The gross profit rate is 35% of sales. Inventory at the end of December is $29,600 and target ending inventory levels are 10% of next month's sales, stated at cost.
What is the amount of purchases budgeted for January?

Question

Wallace Company provides the following data for next year:

The gross profit rate is 35% of sales. Inventory at the end of December is $29,600 and target ending inventory levels are 10% of next month's sales, stated at cost.
What is the amount of purchases budgeted for January?

Quizplus · Accepted Answer

Budgeted purchases for January = $55,420 ($78,000* - $29,600 + $7,020**)
*$120,000 × (100% - 35%) = $78,000
**$108,000 × (100% - 35%) × 10% = $7,020

Wallace Company Provides the Following Data for Next Year