Sentra Sporting Company sells tennis rackets and other sporting equipment. The purchasing department manager prepared the inventory purchases budget. Sentra's policy is to maintain an ending inventory balance equal to 15% of the following month's cost of goods sold. January's budgeted cost of goods sold is $70,000. What would be the required purchases (on account) for December?

Question

Sentra Sporting Company sells tennis rackets and other sporting equipment. The purchasing department manager prepared the inventory purchases budget. Sentra's policy is to maintain an ending inventory balance equal to 15% of the following month's cost of goods sold. January's budgeted cost of goods sold is $70,000.  What would be the required purchases (on account) for December?

Quizplus · Accepted Answer

Budgeted purchases of inventory purchases = Budgeted cost of goods sold + Desired ending inventory - Beginning inventory
Budgeted purchases of inventory purchases in December = Budgeted cost of goods sold + (Budgeted cost of goods sold in January × 15%) - (Budgeted cost of goods sold in December × 15%)
Budgeted purchases of inventory purchases in February = $50,000 + ($70,000 × 15%) - ($50,000 × 15%) = $50,000 + $10,500 - $7,500 = $53,000

Sentra Sporting Company Sells Tennis Rackets and Other Sporting Equipment