Tony's Fashions forecasts sales of $300,000 for the quarter ended December 31. The company's gross profit rate averages 20% of sales. Inventory as of September 30 is $100,000. If the December 31st inventory is targeted at $40,000, budgeted purchases for the quarter should be:
What will be an ideal response?
$180,000
1. Beginning-of-quarter inventory (given) = $100,000
2. Gross Profit on this quarter's estimated sales = $300,000 × 20% = $60,000
3. Estimated cost of goods sold during the quarter = Estimated sales ? estimated gross profit = $300,000 ? $60,000 = $240,000
4. Desired end-of-quarter inventory = $40,000 (given)
5. Required inventory purchases to meet desired ending inventory = Estimated cost of goods sold during the quarter + desired ending inventory (at cost) ? beginning inventory (at cost) = $240,000 + $40,000 ? $100,000 = $180,000
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