Fosnight Enterprises prepared the following sales budget: The expected gross profit rate is 20% and the inventory at the end of February was $9000. Desired inventory levels at the end of the month are 10% of the next month's cost of goods sold.
What is the budgeted cost of goods sold for May?

Question

Fosnight Enterprises prepared the following sales budget:  The expected gross profit rate is 20% and the inventory at the end of February was $9000. Desired inventory levels at the end of the month are 10% of the next month's cost of goods sold.
What is the budgeted cost of goods sold for May?

Quizplus · Accepted Answer

Based on the sales budget, the total revenue for May is $48,000 ($12,000 + $18,000 + $18,000). Assuming a gross profit rate of 20%, the cost of goods sold would be $38,400 ($48,000 x 0.8). To calculate the desired inventory level at the end of May, we need to first calculate the cost of goods sold for June, which is $48,000 x 0.8 = $38,400. The desired inventory level at the end of May would then be 10% of $38,400, which is $3,840. Since the inventory at the end of February was $9,000 and there were no additional inventory purchases, the total inventory cost for May is $9,000 + $3,840 = $12,840. Finally, we can calculate the budgeted cost of goods sold for May by subtracting the ending inventory from the cost of goods available for sale: $38,400 - $12,840 = $25,560. Therefore, the correct answer is B.

Fosnight Enterprises Prepared the Following Sales Budget: the Expected