Kelita, Inc., projects sales for its first three months of operation as follows: October November December
Credit sales $100,000 $150,000 $200,000
Cash sales 40,000 60,000 50,000
Total Sales $140,000 $210,000 $250,000
Inventory on October 1 is $40,000. Subsequent beginning inventories should be 40% of that month's cost of goods sold. Goods are priced at 140% of their cost. 50% of purchases are paid for in the month of purchase; the balance is paid in the following month. It is expected that 50% of credit sales will be collected in the month following sale, 30% in the second month following the sale, and the balance the third month. A 5% discount is given if payment is received in the month following sale.
What is the projected cost of goods sold for October?
A)$140,000
B)$220,000
C)$257,000
D)$100,000

Question

Quizplus · Accepted Answer

We know that for October, credit sales are $100,000 and cash sales are $40,000, for a total of $140,000 in sales. Assuming a markup of 140% on goods, the cost of goods sold would be 100/240 times the sales, or approximately $58,333. This means that the beginning inventory for November should be $23,333 (40% of $58,333). Therefore, the projected cost of goods sold for October is the beginning inventory ($40,000) plus purchases (-) payments (+) ending inventory, or:

$40,000 + (x) - (50% of x) + $23,333 = $58,333
Simplifying this equation, we get:

x = $220,000

Therefore, the projected cost of goods sold for October is $220,000.