The managerial accountant at the Holly and Ivy Tree Store reported that the company anticipates sales of $600,000 in September and October, $625,000 in November, $635,000 in December, and note that the sales figure is $640,000 in January. The August sales revenue was equal to the September sales revenue. The managerial accountant establishes the prices at the Holly and Ivy Tree Store on its merchandise to ensure the company earns 45% gross profit on its sales. The managerial accountant expects the ending inventory at the store to equal 12% of the next month's cost of goods sold.
Compute the COGS, inventory, and purchases budget for October, November, and December.

Question

Quizplus · Accepted Answer

Students need to compute the % amount of sales revenue: (100% - 45% = 55% to determine COGS)
Students need to compute the desired ending inventory (× 12% of the next month COGS.
Note: To get the December desired ending inventory, students use January sales = $640,000 × 55% = $352,000; January COGS = $352,000 × 12% = $42,240 (carry figure to December desired ending inventory, 12% of next month's COGS.)

The Managerial Accountant at the Holly and Ivy Tree Store