Question

Upstairs Company has the following data:

Month Budgeted Sales January $108,000 February 132,000 March 144,000 April 120,000 The gross profit rate is 40% of sales and ending inventory at December 31 was $19,440. Desired ending inventory levels are 30% of next month's sales at cost. What are the expected total purchases for February?

A) $79,200

B) $81,360

C) $102,960

D) $105,120

Answer: B The correct option:B) $ 81,360

Can someone show me the steps to below numbers? the calculation steps? Please

Month	Jan	Feb	Mar
Budgeted Cost of Goods Sold ( 60% of budgeted sales) 100-40=60%	64,800	79,200	86,400
Desired ending inventory	23,760	25,920
Total inventory needed	88,560	105,120
Less : Beginning Inventory	19,440	23,760
Purchases required	69,120	81,360

Answer 1

Cost of goods sold percentage = 1 - Gross profit percentage

= 1 - 40%

= 60%

Month	Jan	Feb	Mar
Budgeted Cost of Goods Sold ( 60% of budgeted sales) 100-40=60%	$64,800 ($108,000*60%)	$79,200 ($132,000*60%)	$86,400 ($144,000*60%)
Desired ending inventory	$23,760 ($79,200*30%)	$25,920 ($86,400*30%)
Total inventory needed	88,560 ($64,800+$23,760)	105,120 ($79,200+$$25,920)
Less : Beginning Inventory	19,440	23,760
Purchases required	69,120 ($88,560-$19,440)	81,360 ($105,120-$23,760)

* The ending inventory of a particular month becomes the beginning inventory for the next month. December ending inventory of $19,440 is the beginning inventory for January and January ending inventory of $23,760 is the beginning inventory for February.