Question

Sander Enterprises prepared the following sales budget:

Month	Budgeted Sales
March	$7000
April	$12,000
May	$11,000
June	$18,000

The expected gross profit rate is 20% and the inventory at the end of February was $5000. Desired inventory levels at the end of the month are 30% of the next month's cost of goods sold.

What are the total purchases budgeted for May?

		$11,440
		$8800
		$7120
		$10,480

Answer 1

Cost of goods sold in May = $11,000 - 20% = $8,800

Cost of goods sold in June = $18,000 - 20% = $14,400

30% of June cost of goods sold is desired ending inventory in May.

Desired ending inventory in May = $14,400 X 30% = $4,320

30% of May cost of goods sold is ending inventory in April. April ending inventory is equal to May opening inventory.

Opening inventory in May = $8,800 X 30% = $2,640

Purchases in May = Cost of goods sold + Desired ending inventory - Opening inventory

= $8,800 + $4,320 - $2,640

= $10,480

4th option