XYZ Company prices its products by adding 30% to its cost. XYZ anticipates sales of $715,000 in March, $728,000 in April, and $624,000 in May. XYZ’s policy is to have on hand enough inventories at the end of the month to cover 25% of the next month’s sales. What will be the cost of the inventory that ABC should budget for purchases in April? Solution: Cost of Inventory = Sales price/1.3 March cost of inventory $715,000/1.3 $550,000 April cost of inventory $728,000/1.3 $560,000 May cost of inventory $624,000/1.3 $480,000 Ending Inventory = Beginning inventory + purchases – cost of goods sold (cogs) April ending inventory $480,000 x 25% $120,000 Beginning inventory $560,000 x 25% $140,000 $120,000 = $140,000 + purchases – cost of goods sold (cogs)
XYZ Company prices its products by adding 30% to its cost. XYZ anticipates sales of $715,000 in March, $728,000 in April, and $624,000 in May. XYZ’s policy is to have on hand enough inventories at the end of the month to cover 25% of the next month’s sales. What will be the cost of the inventory that ABC should budget for purchases in April?
Solution:
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Cost of Inventory = Sales price/1.3 |
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March cost of inventory |
$715,000/1.3 |
$550,000 |
|
April cost of inventory |
$728,000/1.3 |
$560,000 |
|
May cost of inventory |
$624,000/1.3 |
$480,000 |
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Ending Inventory = Beginning inventory + purchases – cost of goods sold (cogs) |
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April ending inventory |
$480,000 x 25% |
$120,000 |
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Beginning inventory |
$560,000 x 25% |
$140,000 |
|
$120,000 = $140,000 + purchases – cost of goods sold (cogs) |
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