O'Hare Company is in the process of preparing a purchases budget for the first quarter of Year 2.The company has budgeted sales as follows: $\begin{array}{lll}
\text { Dec. Year 1 } & \$ & 44,000 \
\text { Jan. Year 2 } & \$ & 46,500 \
\text { Feb. Year 2 } & \$ & 51,000 \
\text { Mar. Year 2 } & \$ & 61,500
\end{array}$ Cost of goods sold is expected to be 75% of sales.The company would like to have ending inventory each month equal to 25% of the following month's predicted cost of sales.The total cost of purchases in January Year 2 is:
A) $35,719.
B) $46,500.
C) $44,438.
D) $59,250.

Question

O'Hare Company is in the process of preparing a purchases budget for the first quarter of Year 2.The company has budgeted sales as follows: $\begin{array}{lll}
 \text { Dec. Year 1 } & \$ & 44,000 \
\text { Jan. Year 2 } & \$ & 46,500 \
\text { Feb. Year 2 } & \$ & 51,000 \
\text { Mar. Year 2 } & \$ & 61,500
\end{array}$ Cost of goods sold is expected to be 75% of sales.The company would like to have ending inventory each month equal to 25% of the following month's predicted cost of sales.The total cost of purchases in January Year 2 is:
A) $35,719.
B) $46,500.
C) $44,438.
D) $59,250.

Quizplus · Accepted Answer

To calculate January purchases:  1. Calculate January's cost of goods sold: $46,500 * 75% = $34,875.  2. Calculate February's cost of goods sold: $51,000 * 75% = $38,250.  3. Desired ending inventory for January: 25% of February's cost of goods sold = $38,250 * 25% = $9,563.  4. Beginning inventory for January (25% of January's cost of goods sold): $34,875 * 25% = $8,719.  5. January purchases = January's cost of goods sold + Desired ending inventory - Beginning inventory = $34,875 + $9,563 - $8,719 = $35,719.

O'Hare Company Is in the Process of Preparing a Purchases