Question

Memphis Company's May sales budget calls for sales of $900,000. The store expects to begin May with $50,000 of inventory and to end the month with $55,000 of inventory. Gross margin is typically 45% of sales. Compute the budgeted cost of merchandise purchases for May.

Answer 1

Answer:

Cost of merchandise purchase for May = $500,000

Explanation:

Provided information,

Sales for the month = $900,000

opening inventory = $50,000

Closing inventory = $55,000

Gross margin on sales = 45% of sales

Cost of goods sold = 100 - gross margin = 100 - 45% = 55%

Thus, cost of goods sold = $900,000 $\times$ 55% = $495,000

Therefore, purchase for the month = Cost of goods sold + Closing - Opening

= $495,000 + $55,000 - $50,000 = $500,000