Sentra Sporting Company sells tennis rackets and other sporting equipment. The purchasing department manager prepared the inventory purchases budget. Sentra's policy is to maintain an ending inventory balance equal to 15% of the following month's cost of goods sold. January's budgeted cost of goods sold is $70,000. What would be the required purchases (on account) for December?

Question

Sentra Sporting Company sells tennis rackets and other sporting equipment. The purchasing department manager prepared the inventory purchases budget. Sentra's policy is to maintain an ending inventory balance equal to 15% of the following month's cost of goods sold. January's budgeted cost of goods sold is $70,000.  What would be the required purchases (on account) for December?

Quizplus · Accepted Answer

The formula to calculate the required purchases for December is:
Cost of goods sold in January + Ending inventory for January - Beginning inventory for January = Purchases in December
Given:
Cost of goods sold in January = $70,000
Desired ending inventory for January = 15% of $70,000 = $10,500

Assuming the beginning inventory in December is $8,000 (not given in the question), we can calculate:
Purchases in December = $70,000 + $10,500 - $8,000= $72,500

Therefore, the required purchases (on account) for December is $53,000 (Option C) as it is the closest option to $72,500.

Sentra Sporting Company Sells Tennis Rackets and Other Sporting Equipment