O'Hare Company is in the process of preparing a purchases budget for the first quarter of 2014. The company has budgeted sales as follows: $$\begin{array} { | l | l l | }
\hline \text { December, 2013 } & \$ & 44,000 \
\hline \text { January, 2014 } & \$ & 46,500 \
\hline \text { February, 2014 } & \$ & 51,000 \
\hline \text { March, 2014 } & \$ & 61,500 \
\hline
\end{array}$$ 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 is:

Question

O'Hare Company is in the process of preparing a purchases budget for the first quarter of 2014. The company has budgeted sales as follows: $$\begin{array} { | l | l l | } 
\hline \text { December, 2013 } & \$ & 44,000 \
\hline \text { January, 2014 } & \$ & 46,500 \
\hline \text { February, 2014 } & \$ & 51,000 \
\hline \text { March, 2014 } & \$ & 61,500 \
\hline
\end{array}$$ 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 is:

Quizplus · Accepted Answer

The correct answer is A. The total cost of purchases in January is $35,719. This is calculated as follows:* January sales: $46,500* Cost of goods sold: 75% of sales = $34,875* Ending inventory: 25% of February's cost of goods sold = $3,906* Total cost of purchases: $34,875 + $3,906 = $35,719

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