Chu Company provided the following information related to its inventory sales and purchases for December Year 1 and the first quarter of Year 2: $\begin{array}{|l|l|r|r|r|}
\hline& \text { Dec. Year } 1 &\text { Jan. Year } 2 &\text { Feb. Year } 2 & \text { Mar. Year } 2 \
\hline & \text { (Actual)} & \text { (Budgeted) }& \text { (Budgeted) }& \text { (Budgeted) } \
\hline \text {Cost of goods sold } &\$ 80,000 & \$ 140,000 & \$ 180,000 & \$ 120,000 \
\hline
\end{array}$ 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:
A) $135,000.
B) $165,000.
C) $180,000.
D) $225,000.

Question

Chu Company provided the following information related to its inventory sales and purchases for December Year 1 and the first quarter of Year 2: $\begin{array}{|l|l|r|r|r|}
\hline&  \text { Dec. Year } 1 &\text { Jan. Year } 2 &\text { Feb. Year } 2 & \text { Mar. Year } 2 \
\hline & \text { (Actual)} & \text { (Budgeted)  }& \text { (Budgeted)  }& \text { (Budgeted)  } \
\hline \text {Cost of goods sold } &\$ 80,000 & \$  140,000 & \$ 180,000 & \$ 120,000 \
\hline
\end{array}$ 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:
A) $135,000.
B) $165,000.
C) $180,000.
D) $225,000.

Quizplus · Accepted Answer

To calculate the budgeted purchases for February Year 2, we need to consider the desired ending inventory for February and the beginning inventory for February. The desired ending inventory for February is 25% of March's cost of goods sold, which is 25% of $120,000 = $30,000. The beginning inventory for February is the ending inventory for January, which is 25% of February's cost of goods sold, or 25% of $180,000 = $45,000. The formula for purchases is: Purchases = Cost of Goods Sold + Desired Ending Inventory - Beginning Inventory. Therefore, Purchases = $180,000 + $30,000 - $45,000 = $165,000.

Chu Company Provided the Following Information Related to Its Inventory