At the beginning of 2018,Midway Hardware has an inventory of $400,000.Because sales growth was strong during 2018,the owner wants to increase inventory on hand to $450,000 at December 31,2018.If net sales for 2018 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 2018.
A)$1,490,000.
B)$1,040,000.
C)$1,090,000.
D)$1,600,000.

Question

Quizplus · Accepted Answer

Beginning inventory = $400,000
Desired ending inventory = $450,000
Increase in inventory = $50,000

Cost of goods sold = Net sales x Gross profit rate
Cost of goods sold = $1,600,000 x 35%
Cost of goods sold = $560,000

Cost of merchandise purchased = Cost of goods sold + Increase in inventory - Beginning inventory
Cost of merchandise purchased = $560,000 + $50,000 - $400,000
Cost of merchandise purchased = $210,000

Therefore, the cost of the merchandise the owner should expect to purchase during 2018 is $1,090,000 (option C).

At the Beginning of 2018,Midway Hardware Has an Inventory of $400,000.Because