Answer the following questions using the information below:
The following information pertains to the January operating budget for Canberra Corporation.
∙ Budgeted sales for January $100 000 and for February $200 000.
∙ Collections for sales are 70% in the month of sale and 30% the next month.
∙ Gross margin is 30% of sales.
∙ Administrative costs are $10 000 each month.
∙ Beginning accounts receivable is $20 000.
∙ Beginning inventory is $14 000.
∙ Beginning accounts payable is $60 000.(All from inventory purchases. )
∙ Purchases are paid in full the following month.
∙ Desired ending inventory is 20% of next month's cost of goods sold (COGS).
-At the end of January,budgeted ending inventory is:
A)$40 000.
B)$28 000.
C)$20 000.
D)None of these answers are correct.

Question

Quizplus · Accepted Answer

To calculate the desired ending inventory at the end of January, we first determine the cost of goods sold (COGS) for February, since the desired ending inventory for January is based on February's COGS. February's sales are $200,000, and with a gross margin of 30%, COGS is 70% of sales (100% - 30% = 70%). Therefore, February's COGS = 70% of $200,000 = $140,000. The desired ending inventory for January is 20% of February's COGS, which is 20% of $140,000 = $28,000.

Answer the Following Questions Using the Information Below