Seaworthy Company, a merchandising company, has prepared the following sales budget: $$\begin{array} { | l | r | }
\hline \text { Month } & \text { Budgeted Sales } \
\hline \text { March } & \$ 500,000 \
\hline \text { April } & 187,000 \
\hline \text { May } & 224,000 \
\hline \text {June } & 237,000 \
\hline
\end{array}$$ Cost of goods sold is budgeted at 50% of sales, and the inventory at the end of February was $34,000. Desired inventory levels at the end of each month are 10% of the next month's cost of goods sold. What is the desired beginning inventory on June 1?

Question

Seaworthy Company, a merchandising company, has prepared the following sales budget: $$\begin{array} { | l | r | } 
\hline \text { Month } & \text { Budgeted Sales } \
\hline \text { March } & \$ 500,000 \
\hline \text { April } & 187,000 \
\hline \text { May } & 224,000 \
\hline \text {June } & 237,000 \
\hline
\end{array}$$ Cost of goods sold is budgeted at 50% of sales, and the inventory at the end of February was $34,000. Desired inventory levels at the end of each month are 10% of the next month's cost of goods sold. What is the desired beginning inventory on June 1?

Quizplus · Accepted Answer

To determine the desired beginning inventory on June 1, we need to calculate the cost of goods sold for June and then find 10% of that amount.

First, let's calculate the cost of goods sold for June using the sales budget:
June sales = $300,000 x 0.20 = $60,000
Cost of goods sold = 50% x $60,000 = $30,000

Now, we can calculate the desired ending inventory for May:
Desired ending inventory for May = 10% x $30,000 = $3,000

To find the desired beginning inventory for June, we need to add the desired ending inventory for May to the cost of goods sold for June and subtract the inventory at the end of February:
Desired beginning inventory for June = $3,000 + $30,000 - $34,000 = $11,000

Therefore, the correct answer is D) $11,850.

Seaworthy Company, a Merchandising Company, Has Prepared the Following Sales