Desired ending inventory is 80% of beginning inventory. If cost of goods sold is $300,000, which of the following statements is TRUE regarding purchases?

Question

Quizplus · Accepted Answer

To calculate purchases, we need to use the formula:

Purchases = Cost of Goods Sold + Ending Inventory - Beginning Inventory

We are given that Ending Inventory is 80% of Beginning Inventory. Let's assume Beginning Inventory is X. Therefore, Ending Inventory will be 0.8X.

Now we can substitute the values in the formula:

Purchases = $300,000 + 0.8X - X
Purchases = $300,000 - 0.2X

Since the desired ending inventory is less than the beginning inventory, purchases will be less than the cost of goods sold. Therefore, the statement that is TRUE is D) Purchases will be less than cost of goods sold.

Desired Ending Inventory Is 80% of Beginning Inventory