MedSupplies Company has budgeted purchases of inventory for December of $140,000.Expected beginning inventory on December 1 and ending inventory on December 31 are $90,000 and $120,000,respectively.If cost of goods sold averages 80% of sales,what are budgeted sales for December?

Question

Quizplus · Accepted Answer

The formula to calculate budgeted sales is:

Budgeted sales = Cost of goods sold / (1 - Gross profit rate)

We know that the budgeted purchases of inventory for December are $140,000 and the expected beginning inventory is $90,000. Therefore, the cost of goods available for sale in December is:

Cost of goods available for sale = Beginning inventory + Purchases
Cost of goods available for sale = $90,000 + $140,000
Cost of goods available for sale = $230,000

The expected ending inventory is $120,000. Therefore, the cost of goods sold is:

Cost of goods sold = Cost of goods available for sale - Ending inventory
Cost of goods sold = $230,000 - $120,000
Cost of goods sold = $110,000

We also know that the cost of goods sold averages 80% of sales. Therefore, the gross profit rate is:

Gross profit rate = 1 - Cost of goods sold / Sales
Gross profit rate = 1 - 0.8
Gross profit rate = 0.2

Now we can use the formula above to calculate the budgeted sales:

Budgeted sales = Cost of goods sold / (1 - Gross profit rate)
Budgeted sales = $110,000 / (1 - 0.2)
Budgeted sales = $110,000 / 0.8
Budgeted sales = $137,500

Therefore, the answer is C) $137,500.

MedSupplies Company Has Budgeted Purchases of Inventory for December of $140,000.Expected