Question

Upstairs Company has the following data:

Month                Budgeted Sales

January                        $112,000

February                        125,000

March                            132,000

April                              120,000

The gross profit rate is 40% of sales and ending inventory at December 31 was $26,325. Desired ending inventory levels are 25% of next month's sales at cost. What are the expected total purchases for March?

A) $77,400

B) $86,480

C) $100,750

D) $105,575

Answer 1

Answer-Total Purchase for the month of March=$77400(Working Note)

Working Note-

Particulars	January	February	March	April
Bugeted sales(Given)	112000	125000	132000	120000
Add Closing stock(W.N 2)	18750	19800	18000
Total A	130750	144800	150000	168000
B)
opening stock(Given)	26325	18750	19800
gross profit(4%of sales)	44800	50000	52800	48000
Total b)	71125	68750	72600
Purchase (Total A- Total b)	59625	76050	77400

W,.N 2- Ending Inventory is 25% of next Month sales at cost

Ending Inventory for the month of January=(Budgeted sales of feb*60%of sales)*25%

=(125000*60%)*25%

=$18750

Ending Inventory for the month of February=(Budgeted sales of march*60%of sales)*25%

=(132000*60%)*25

=$19800

Ending Inventory for the month of March=(Budgeted sales of April*60%of sales)*25%

=(120000*60%)*25

=$18000