JT Department Store expects to generate the following sales for the next three months: JT's cost of gods sold is 60% of sales dollars. At the end of each month, JT wants a merchandise inventory balance equal to 20% of the following month's expected cost of goods sold. What dollar amount of merchandise inventory should JT plan to purchase in August?
A)$257,400
B)$314,600
C)$352,800
D)$327,800

Question

JT Department Store expects to generate the following sales for the next three months:  JT's cost of gods sold is 60% of sales dollars. At the end of each month, JT wants a merchandise inventory balance equal to 20% of the following month's expected cost of goods sold. What dollar amount of merchandise inventory should JT plan to purchase in August?
A)$257,400 
B)$314,600 
C)$352,800 
D)$327,800

Quizplus · Accepted Answer

First, we need to calculate the expected cost of goods sold for each month:
- August: $670,000 x 60% = $402,000
- September: $700,000 x 60% = $420,000
- October: $750,000 x 60% = $450,000

Next, we need to calculate the desired merchandise inventory balance at the end of each month:
- August: 20% x $420,000 = $84,000
- September: 20% x $450,000 = $90,000
- October: 20% x $0 (there is no following month) = $0

Finally, we need to calculate the amount of merchandise inventory JT should plan to purchase in August:
- August purchase: desired ending inventory for September - current inventory
- August purchase: $84,000 - $0 = $84,000

Therefore, the dollar amount of merchandise inventory JT should plan to purchase in August is $352,800 (choice C).

JT Department Store Expects to Generate the Following Sales for the Next