Question

BobCat Inc. is in the process of preparing a purchases budget for the third quarter of 2016. The company expects its cost of goods sold to be the following amount June July August September COGS 20,000 23,000 28,000 38,000 The company would like to have ending inventory each month equal to 20% of the following month's predicted cost of sales. What would be the beginning inventory in August? A. 6,600 B. 7,600 C. 4,600 D. 5,600

Answer 1

Answer : D)$5,600.

Beginning Balance of inventory in August = $ 5,600

Beginning Balance of August will be the Ending balance of Inventory of July.

Ending Inventory Balance of July = Following month of Cost of sales * 20%

Following month cost of sales ( August Cost of Sales)= $ 28,000

Ending inventory of July = $28,000*20% = $5,600

Beginning inventory Balance of August = $ 5,600( Answer )

Cost of Goods Sold Ratio of Inventory to following month COGS Budgeted Ending Inventory Budgeted Beging inventor June july august september 38000 20% 20% 20% 20% 0 7600 20000 23000 28000 4600 56007600 4000 4600 5600 Answer: Beginning Inventory Balance of August $5,600