Question

# Upstairs Company has the following data: Month Budgeted Sales January \$108,000 February 132,000 March 144,000 April...

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

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.

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