Norton Company prepared the following sales budget: Cost of goods sold is budgeted at 60% of sales, and the inventory at the end of February was $36,000. Desired inventory levels at the end of each month are 30% of the next month's cost of goods sold. How much are the budgeted purchases for the month of March?

Question

Norton Company prepared the following sales budget:  Cost of goods sold is budgeted at 60% of sales, and the inventory at the end of February was $36,000. Desired inventory levels at the end of each month are 30% of the next month's cost of goods sold. How much are the budgeted purchases for the month of March?

Quizplus · Accepted Answer

1. Calculate the cost of goods sold (COGS) for March:

COGS = 0.6 x Total Sales = 0.6 x $360,000 = $216,000

2. Calculate the desired inventory at the end of March:

Desired Inventory = 0.3 x COGS for April = 0.3 x $360,000 = $108,000

3. Calculate the required purchases for March:

Required Purchases = COGS + Desired Inventory at the end of March - Inventory at the end of February 
= $216,000 + $108,000 - $36,000 
= $288,000 - $36,000 
= $252,000

Therefore, the budgeted purchases for the month of March is $134,400 (Choice C).

Norton Company Prepared the Following Sales Budget: Cost of Goods