Chu Company provided the following information related to its inventory sales and purchases for December Year 1 and the first quarter of Year 2: $$\begin{array} { c c c c c }
& \begin{array} { c }
\text { Dec. Year 1 } \
\text { (Actual) }
\end{array} & \begin{array} { c }
\text { Jan. Year 2 } \
\text { (Budgeted) }
\end{array} & \begin{array} { c }
\text { Feb. Year 2 } \
\text { (Budgeted) }
\end{array} & \begin{array} { c }
\text { Mar. Year 2 } \
\text { (Budgeted) }
\end{array} \
\text { Cost of goods sold } & \$ 80,000 & \$ 140,000 & \$ 180,000 & \$ 120,000
\end{array}$$ Desired ending inventory levels are 25% of the following month's projected cost of goods sold.Budgeted purchases of inventory in February Year 2 would be:
A) $135,000.
B) $165,000.
C) $180,000.
D) $225,000.

Question

Chu Company provided the following information related to its inventory sales and purchases for December Year 1 and the first quarter of Year 2: $$\begin{array} { c c c c c } 
& \begin{array} { c } 
\text { Dec. Year 1 } \
\text { (Actual) }
\end{array} & \begin{array} { c } 
\text { Jan. Year 2 } \
\text { (Budgeted) }
\end{array} & \begin{array} { c } 
\text { Feb. Year 2 } \
\text { (Budgeted) }
\end{array} & \begin{array} { c } 
\text { Mar. Year 2 } \
\text { (Budgeted) }
\end{array} \
\text { Cost of goods sold } & \$ 80,000 & \$ 140,000 & \$ 180,000 & \$ 120,000
\end{array}$$ Desired ending inventory levels are 25% of the following month's projected cost of goods sold.Budgeted purchases of inventory in February Year 2 would be:
A) $135,000.
B) $165,000.
C) $180,000.
D) $225,000.

Quizplus · Accepted Answer

To calculate the budgeted purchases for February Year 2, we first determine the desired ending inventory for February, which is 25% of March's cost of goods sold ($120,000 * 25% = $30,000). Then, we calculate the total needed inventory for February by adding the cost of goods sold in February ($180,000) to the desired ending inventory for February ($30,000), totaling $210,000. We subtract January's ending inventory, which is also February's beginning inventory (25% of February's cost of goods sold, $180,000 * 25% = $45,000), from the total needed inventory for February ($210,000 - $45,000 = $165,000). Therefore, the budgeted purchases for February Year 2 are $165,000.

Chu Company Provided the Following Information Related to Its Inventory