Question

The sales budget for Modesto Corporation shows that 22,000 units of Product B will be sold in the current month and 27,000 units will be sold in the next month. Beginning inventory on April 1 is 2,200 units, and the company wants to have 10% of the next month’s sales in inventory at the end of each month. Budgeted purchases of Product B for the current month would be:

Answer 1

To calculate the budgeted purchases of inventory, you can use the following formula1:

Budgeted purchases = Cost of sales + Ending inventory - Beginning inventory

In this case, you need to know the cost of sales and the ending inventory for the current month. The cost of sales is the number of units sold multiplied by the unit cost. The ending inventory is 10% of the next month’s sales multiplied by the unit cost. The beginning inventory is given as 2,200 units.

Assuming that the unit cost of Product B is $10, you can plug in the numbers into the formula as follows:

Budgeted purchases = (22,000 x $10) + (0.1 x 27,000 x $10) - (2,200 x $10) Budgeted purchases = $220,000 + $27,000 - $22,000 Budgeted purchases = $225,000

Therefore, the budgeted purchases of Product B for the current month are $225,000.