Peabody Enterprises prepared the following sales budget: $$\begin{array} { | l | r | }
\hline \text { Month } & \text { Budgeted Sales } \
\hline \text { March } & \$ 6,000 \
\hline \text { April } & \$ 13,000 \
\hline \text { May } & \$ 12,000 \
\hline \text { Jure } & \$ 14,000 \
\hline
\end{array}$$ The expected gross profit rate is 40% and the inventory at the end of February was $10,000.Desired inventory levels at the end of the month are 20% of the next month's cost of goods sold.
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What is the budgeted cost of goods sold for May?

Question

Peabody Enterprises prepared the following sales budget: $$\begin{array} { | l | r | } 
\hline \text { Month } & \text { Budgeted Sales } \
\hline \text { March } & \$ 6,000 \
\hline \text { April } & \$ 13,000 \
\hline \text { May } & \$ 12,000 \
\hline \text { Jure } & \$ 14,000 \
\hline
\end{array}$$ The expected gross profit rate is 40% and the inventory at the end of February was $10,000.Desired inventory levels at the end of the month are 20% of the next month's cost of goods sold.
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What is the budgeted cost of goods sold for May?

Quizplus · Accepted Answer

The budgeted cost of goods sold for May is $7,200. This is calculated as follows:Budgeted sales for May = $12,000Gross profit rate = 40%Cost of goods sold = Budgeted sales / Gross profit rateCost of goods sold = $12,000 / 0.40Cost of goods sold = $30,000Desired ending inventory for May = 20% of June's cost of goods soldJune's budgeted sales = $14,000Gross profit rate = 40%June's cost of goods sold = June's budgeted sales / Gross profit rateJune's cost of goods sold = $14,000 / 0.40June's cost of goods sold = $35,000Desired ending inventory for May = 20% x $35,000 = $7,000Budgeted cost of goods sold for May = Beginning inventory + Purchases - Ending inventoryBeginning inventory = $10,000Purchases = Budgeted cost of goods sold - Desired ending inventoryPurchases = $30,000 - $7,000 = $23,000Budgeted cost of goods sold for May = $10,000 + $23,000 - $7,000Budgeted cost of goods sold for May = $7,200

Peabody Enterprises Prepared the Following Sales Budget The Expected Gross Profit Rate Is 40% and the Inventory