Question

Good Morning Sunshine is a wholesaler of coffee makers. In 2012, actual June sales revenue totaled $250,000. July's sales are expected to increase 10% over June's sales, August's sales are expected to increase 15% over July's sales. Prices are set to achieve a 60% gross profit. The company wants to maintain an ending merchandise inventory equal to 15% of the next month's cost of goods sold. This requirement was met on July 1st. The company's budgeted purchases for the month of July are $ (round to the nearest dollar)

Answer 1

First we will calculate the sales for the months of July and August:

July sales will be 110% of June sales and august sales will be 115% of July sales. So,

Sales:

July sales = $250000 * 110% = $275000

August sales = $275000 * 115% = $316250

Next we will calculate cost of goods sold for the months of July and August. Gross profit is 60%. So, cost of goods sold will be 40% of sales.So, cost of goods sold for July will be 40% of July sales and cost of goods sold for August will be 40% of august sales as per below:

Cost of goods sold:

July = $275000 * 40% = $110000

August = $316250 * 40% = $126500

Next we will calculate the ending inventories for June and July.

Ending inventory for June will be 15% of July cost of goods sold and ending inventory for July will be 15% August cost of goods sold. So,

Ending inventory:

June ending inventory = $110000 * 15% = $16500

July ending inventory = $126500 * 15% = $18975

Now, we will calculate the purchases of July with the below formula:

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

Where, Cost of goods sold for July = $110000, Beginning inventory of July = Ending inventory of June = $16500, Ending inventory of July = $18975

Putting these values in the above equation, we get,

$110000 = $16500 + Purchases - $18975

$110000 = Purchases - $2475

Purchases = $110000 + $2475

Purchases = $112475

So, the budgeted purchases for the month of July are $112475.