Marty's Merchandise has budgeted sales as follows for the second quarter of the year:
| April | $ | 30,000 |
| May | $ | 60,000 |
| June | $ | 50,000 |
Cost of goods sold is equal to 70% of sales. The company wants to maintain a monthly ending inventory equal to 120% of the cost of goods sold for the following month. The inventory on March 31 was below this target and was only $22,000. The company is now preparing a Merchandise Purchases Budget for April, May, and June.
The budgeted purchases for May are:
Multiple Choice
Explanation
Merchandise Purchases Budget
| May | ||
| Budgeted cost of goods sold (70% × $60,000) | $ | 42,000 |
| Add desired ending merchandise inventory (120% × 70% × $50,000) | 42,000 | |
| Total needs | 84,000 | |
| Less beginning merchandise inventory (120% × 70% × $60,000) | 50,400 | |
| Required purchases | $ | 33,600 |
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