Question

Fosnight Enterprises prepared the following sales budget: Month March April May June Budgeted Sales $6,000 $12.000 $10,000 $11,000 The expected gross profit rate is 20% and the inventory at the end of February was $8,000. Desired Inventory levels at the end of the month are 20% of the next month's cost of goods sold. What is the desired ending Inventory on May 31? O A $440 OB. $1,600 OC. $8,800 OD. $1.760

Answer 1

Solution

Fosnight Enterprises

Answer – D. $1,760

Computations:

Determination of the desired ending inventory on May 31:

Desired ending inventory = 20% of next month’s cost of goods sold

Desired ending inventory on May 31 = 20% of June’s cost of goods sold

Cost of goods sold = sales – gross profit percent

Cost of goods sold = 100 – 20 = 80%

Cost of goods sold, June = $11,000 x 80% = $8,800

Ending inventory on May 31 = 20% x $8,800 = $1,760

Hence, desired ending inventory on MY 31 = $1,760

Answer 2

Fosnight Enterprises prepared the following sales budget:

Month	Budgeted Sales
March	$3,000
April	$10,000
May	$12,000
June	$20,000

The expected gross profit rate is 20% and the inventory at the end of February was $9,000. Desired inventory levels at the end of the month are 10% of the next month's cost of goods sold.

What is the budgeted cost of goods sold for May?