Answer the following questions using the information below:
Wallace Company provides the following data for next year:
$$\begin{array} { l c }
\text { Month } & \text { Budgeted Sales } \
\text { January } & \$ 120,000 \
\text { February } & 108,000 \
\text { March } & 132,000 \
\text { April } & 144,000
\end{array}$$ The gross profit rate is 35% of sales. Inventory at the end of December is $21,600 and target ending inventory levels are 20% of next month's sales, stated at cost.
-What is the amount of purchases budgeted for January?

Question

Answer the following questions using the information below:
Wallace Company provides the following data for next year:
 $$\begin{array} { l c } 
\text { Month } & \text { Budgeted Sales } \
\text { January } & \$ 120,000 \
\text { February } & 108,000 \
\text { March } & 132,000 \
\text { April } & 144,000
\end{array}$$ The gross profit rate is 35% of sales. Inventory at the end of December is $21,600 and target ending inventory levels are 20% of next month's sales, stated at cost.
-What is the amount of purchases budgeted for January?

Quizplus · Accepted Answer

To calculate the budgeted purchases for January, first determine the cost of goods sold (COGS) for January, which is 65% of sales (100% - 35% gross profit rate). COGS for January = $120,000 * 65% = $78,000. Next, calculate the desired ending inventory for January, which is 20% of February's sales at cost: $108,000 * 65% * 20% = $14,040. The beginning inventory for January is $21,600. Therefore, budgeted purchases = COGS + Ending Inventory - Beginning Inventory = $78,000 + $14,040 - $21,600 = $70,440.

Answer the Following Questions Using the Information Below: Wallace Company

Answer the Following Questions Using the Information Below:
Wallace Company