Answer:
$70440
Explanation:
Given data :
Month Budgeted sales
January $120,000
February $108,000
March $132,000
April $144,000
Gross profit rate = 35% of sales
Inventory at end of December = $21600
Target ending inventory level = 20% of next month sales
<u>Determine the amount of purchases budget for January</u>
First step : calculate
Cost of goods for January = Budgeted sales - Gross profit
= $120,000 - $42,000 = $78000
Next : determine ending inventory in January
= 20% * ( Budgeted sales in Feb * 65% )
= 20% * ($108000 * 65%) = $14040
Determine budgeted purchase using the Relation below
Cost of goods sold = Beginning inventory + Budgeted purchases - Ending inventory
78,000 = 21600 + Budgeted purchases - 14040
therefore
Budgeted purchases for January = ( 78,000 + 14040 - 21600 )
= $70440
