Answer:
Cost of goods sold in January year 2 = 75% x $46,500 = $34,875
Cost of goods sold in February year 2 = 75% x $51,000 = $38,250
Ending inventory in December year 1 = 25% x $34,875 = $8,718.75
Ending inventory in January year 2 = 25% x $38,250 = $9,562.50
Cost of purchases in January year 2 will be:
Cost of purchases = Cost of goods sold + Closing inventory – Opening inventory
Cost of purchases = $34,875 + $9,562.50 - $8,718.75
Cost of purchases = $35,718.75
Explanation: This question relates to the computation of cost of purchases. Cost of goods sold is 75% of sales while the ending inventory is 25% of the next month's cost of sales. The ending inventory in a month is the beginning inventory of another month. For instance, the ending inventory in December year 1 becomes the beginning inventory in January year 2
