Chu Company provided the following information related to its inventory sales and purchases for December Year 1 and the first quarter of Year 2: Dec. Year 1 Jan. Year 2 Feb. Year 2 Mar. Year 2 (Actual) (Budgeted) (Budgeted) (Budgeted) Cost of goods sold $ 39,000 $ 69,000 $ 89,000 $ 59,000 Desired ending inventory levels are 25% of the following month's projected cost of goods sold. Budgeted purchases of inventory in February Year 2 would be: Multiple Choice

a. $81,500.

b. $66,500.

c. $89,000.

d. $111,000.

Question

Business

Hicks

28 January, 09:44

Chu Company provided the following information related to its inventory sales and purchases for December Year 1 and the first quarter of Year 2: Dec. Year 1 Jan. Year 2 Feb. Year 2 Mar. Year 2 (Actual) (Budgeted) (Budgeted) (Budgeted) Cost of goods sold $ 39,000 $ 69,000 $ 89,000 $ 59,000 Desired ending inventory levels are 25% of the following month's projected cost of goods sold. Budgeted purchases of inventory in February Year 2 would be: Multiple Choice

a. $81,500.

b. $66,500.

c. $89,000.

d. $111,000.

+3

Answers (1)

Know the Answer?

Sean Glover · Answer 1

Option (a) is correct.

Explanation:

For February,

Opening inventory would have been:

= 25% of February

= (25% * $89,000)

= $22,250

Ending inventory would have been:

= 25% of March

= (25% * $59,000)

= $14,750

Hence,

Cost of goods sold = Opening inventory + Purchases - Ending inventory

$89,000 = $22,250 + Purchases - $14,750

Purchases = $89,000 + $14,750 - $22,250

= $81,500

Therefore, the budgeted purchases of inventory in February Year 2 would be $81,500.