Sander Enterprises prepared the following sales budget: The expected gross profit rate is 40% and the inventory at the end of February was $10,000. Desired inventory levels at the end of the month are 20% of the next month's cost of goods sold.
What is the desired ending inventory on May 31?

Question

Sander Enterprises prepared the following sales budget:  The expected gross profit rate is 40% and the inventory at the end of February was $10,000. Desired inventory levels at the end of the month are 20% of the next month's cost of goods sold.
What is the desired ending inventory on May 31?

Quizplus · Accepted Answer

To find the desired ending inventory on May 31, we need to first calculate the cost of goods sold (COGS) for June. We can do this by taking the sales for June and multiplying them by (100% - gross profit rate %).

COGS for June = $156,000 * (100% - 40%) = $93,600

Next, we need to calculate the desired inventory level for May 31, which is 20% of the COGS for June.

Desired inventory level for May 31 = 20% * $93,600 = $18,720

Finally, we need to adjust for the inventory at the end of February and the increase in inventory during March-April-May.

Inventory at end of February = $10,000
Increase in inventory for March-April-May = $1,680 + $1,680 + $1,680 = $5,040

Desired ending inventory on May 31 = Inventory at end of February + Increase in inventory for March-April-May + Desired inventory level for May 31

Desired ending inventory on May 31 = $10,000 + $5,040 + $18,720 = $33,760

Therefore, the correct answer is choice (C) $1,680.

Sander Enterprises Prepared the Following Sales Budget: the Expected