Taurus Company has the following data: The gross profit rate is 40% of sales and ending inventory at December 31 was $19,440.Desired ending inventory levels are 30% of next month's sales at cost.What are the expected total purchases for February?
A)$79,200
B)$81,360
C)$102,960
D)$105,120

Question

Taurus Company has the following data:  The gross profit rate is 40% of sales and ending inventory at December 31 was $19,440.Desired ending inventory levels are 30% of next month's sales at cost.What are the expected total purchases for February?
A)$79,200 
B)$81,360 
C)$102,960 
D)$105,120

Quizplus · Accepted Answer

To calculate the expected total purchases for February, we need to first find the cost of goods sold (COGS):
COGS = Sales x (100% - Gross profit rate)
COGS = Sales x (100% - 40%)
COGS = 0.6 x Sales

We also know that ending inventory at December 31 was $19,440 and desired ending inventory for January is 30% of next month's sales at cost:
Desired ending inventory = 30% x Next month's sales x Cost of goods sold percentage
$19,440 = 0.3 x Next month's sales x 0.6
Next month's sales = $108,000

Now we can calculate the value of COGS for February:
COGS = 0.6 x $108,000
COGS = $64,800

To find the expected total purchases for February, we use the formula:
Expected total purchases = COGS + Ending inventory - Beginning inventory
Beginning inventory is not given, so we assume it is the same as ending inventory for December ($19,440):
Expected total purchases = $64,800 + (0.3 x $108,000) - $19,440
Expected total purchases = $81,360

Therefore, the best choice is B.

Taurus Company Has the Following Data: the Gross Profit