Chu Company provided the following information related to its inventory sales and purchases for December 2013 and the first quarter of 2014: $$\begin{array} { | l | c | c | c | c | c | }
\hline & \text { Dec. } 2013 & \text { Jan. } 2014 & \text { Feb. 2014 } & \text { Mar. } 2014 \
\hline & \text { (Actual) } & \text { (Budgeted) } & \text { (Budgeted) } & \text { (Budgeted) } \
\hline \text { Cost of goods sold } & \$ 80,000 & \$ 140,000 & \$ 180,000 & \$ 120,000 \
\hline
\end{array}$$ Desired ending inventory levels are 25% of the following month's projected cost of goods sold. Budgeted purchases of inventory in February 2014 would be:

Question

Chu Company provided the following information related to its inventory sales and purchases for December 2013 and the first quarter of 2014: $$\begin{array} { | l | c | c | c | c | c | } 
\hline & \text { Dec. } 2013 & \text { Jan. } 2014 & \text { Feb. 2014 } & \text { Mar. } 2014 \
\hline & \text { (Actual) } & \text { (Budgeted) } & \text { (Budgeted) } & \text { (Budgeted) } \
\hline \text { Cost of goods sold } & \$ 80,000 & \$ 140,000 & \$ 180,000 & \$ 120,000 \
\hline
\end{array}$$ Desired ending inventory levels are 25% of the following month's projected cost of goods sold. Budgeted purchases of inventory in February 2014 would be:

Quizplus · Accepted Answer

The desired ending inventory for February is 25% of March's cost of goods sold, which is $120,000 * 25% = $30,000. The beginning inventory for February is the ending inventory of January, which is 25% of February's cost of goods sold, $180,000 * 25% = $45,000. Therefore, budgeted purchases for February = February's cost of goods sold + desired ending inventory - beginning inventory = $180,000 + $30,000 - $45,000 = $165,000.

Chu Company Provided the Following Information Related to Its Inventory