A firm's planned purchases for a given month are $30,000 and its purchase commitments are $7,000.If its merchandise costs as a percent of selling price are .75;its open-to-buy at cost is $17,250.

Question

Quizplus · Accepted Answer

To calculate the open-to-buy at cost, we need to subtract the purchase commitments from the planned purchases:
$30,000 - $7,000 = $23,000 (Total available for purchases)
Next, we need to divide this by the merchandise cost percentage (0.75) to get the total selling price available for purchases:
$23,000 / 0.75 = $30,667
Finally, we need to subtract the total selling price from the planned purchases:
$30,667 - $30,000 = $667
This is the amount of excess inventory the firm can afford to purchase, which equals $667 / 0.75 = $889.33 at cost. 
Therefore, the open-to-buy at cost is ($17,250 + $889.33) = $18,139.33, which is less than the total available for purchases ($23,000). Hence, the statement is true.

A Firm's Planned Purchases for a Given Month Are $30,000