At the beginning of 2015,Midway Hardware has an inventory of $400,000.Because sales growth was strong during 2015,the owner wants to increase inventory on hand to $450,000 at December 31,2015.If net sales for 2015 are expected to be $1,600,000,and the gross profit rate is expected to be 35%,compute the cost of the merchandise the owner should expect to purchase during 2015.

Question

Quizplus · Accepted Answer

The formula for calculating cost of goods sold (COGS) is:
COGS = Net Sales x Gross Profit Rate
We are given that the gross profit rate is 35% and net sales for 2015 are expected to be $1,600,000. Therefore,
COGS = $1,600,000 x 35%
COGS = $560,000

We need to calculate the merchandise the owner should expect to purchase during 2015. To do this, we can use the following formula:
Cost of Merchandise Purchased = COGS + Ending Inventory - Beginning Inventory
We are given that the owner wants to increase inventory on hand to $450,000 at December 31, 2015 and the beginning inventory was $400,000. Therefore,
Ending Inventory = $450,000
Beginning Inventory = $400,000

Substituting the values, we get
Cost of Merchandise Purchased = $560,000 + $450,000 - $400,000
Cost of Merchandise Purchased = $1,010,000

Therefore, the cost of the merchandise the owner should expect to purchase during 2015 is $1,010,000 or option C.

At the Beginning of 2015,Midway Hardware Has an Inventory of $400,000.Because