Question

BobCat Inc. is in the process of preparing a purchases budget for the third quarter of 2016. The company expects its cost of goods sold to be the following amount:
COGS
June 20,000
July 23,000
August 28,000
September 38,000
The company would like to have ending inventory each month equal to 20% of the following month's predicted cost of sales.
Required:
1. What would be the total cost of purchases in August 2016?

Answer 1

Answer:

Purchases in August = $30000

Explanation:

Cost of golds sold = opening inventory + purchases - closing inventory

Purchase therefore would be

Purchases = cost of goods sold(COS) + closing inventory - opening inventory

Opening inventory in August = Closing inventory for July i.e  (20%× august):

= 20% × 28,000 = 5600

Closing inventory in August = 20%× September COS

= 20%×  38,000 = 7600

Purchases in August

= 28,000+7600 - 5600

= $30000