Kabuki Company's policy is to have 16% of the next month's sales as desired ending inventory. Estimated sales are shown in the table below. Given this data, what is Kabuki's estimated purchases for March?

Question

Quizplus · Accepted Answer

To solve for the estimated purchases, we need to determine the desired ending inventory for March. 
Desired ending inventory = 16% of March's sales 
= 16% * $58,500 
= $9,360

To calculate the estimated purchases for March, we use the following formula: 
Estimated purchases = Cost of goods sold + Desired ending inventory - Beginning inventory

We are not given beginning inventory, so we cannot calculate the cost of goods sold. However, we do have the information that the cost of goods sold is 70% of sales. 
Cost of goods sold = 70% * $58,500 
= $40,950

Using this information, we can now calculate the estimated purchases as follows: 
Estimated purchases = $40,950 + $9,360 - Beginning inventory

We don't know the beginning inventory, but we can eliminate answer choices A, C, D, and E because they all result in estimated purchases that are too low. 
Plug in option B: 
$40,950 + $9,360 - $40,990 = $9,320

Therefore, the best choice is B.

Kabuki Company's Policy Is to Have 16% of the Next