Tony's Fashions forecasts sales of $300,000 for the quarter ended December 31. The company's gross profit rate averages 20% of sales. Inventory as of September 30 is $100,000. If the December 31st inventory is targeted at $40,000, budgeted purchases for the quarter should be:

Question

Quizplus · Accepted Answer

We can use the formula:

Beginning Inventory + Purchases - Ending Inventory = Cost of Goods Sold

Solving for purchases:

Purchases = Cost of Goods Sold + Ending Inventory - Beginning Inventory

Cost of Goods Sold can be found by multiplying the forecasted sales by the gross profit rate:

Cost of Goods Sold = $300,000 x 0.80 = $240,000

Using the information from the problem:

Beginning Inventory = $100,000
Ending Inventory = $40,000

Plugging in the values:

Purchases = $240,000 + $40,000 - $100,000 = $180,000

Therefore, the correct answer is choice C.

Tony's Fashions Forecasts Sales of $300,000 for the Quarter Ended