At the beginning of 2015, England Dresses has an inventory of $70,000. However,

Question

At the beginning of 2015, England Dresses has an inventory of $70,000. However, management wants to reduce the amount of inventory on hand to $40,000 at December 31. If net sales for 2015 are forecast at $180,000 and the gross profit rate is expected to be 18%, compute the cost of the merchandise which management should expect to purchase during 2015. (Hint: First compute the expected cost of goods sold.)

$187,600.

$117,600.

$147,600.

$110,000.

At the beginning of 2015, England Dresses has an inventory of $70,000. However, management wants to reduce the amount of inventory on hand to $40,000 at December 31. If net sales for 2015 are forecast at $180,000 and the gross profit rate is expected to be 18%, compute the cost of the merchandise which management should expect to purchase during 2015. (Hint: First compute the expected cost of goods sold.)

Explanation / Answer

Cost of goods sold = 180000*(1-18%) = 147600

Purchase = COGS - beginning inventory + ending inventory

= 147600 - 70000 + 40000 = 117600 (Option 2)

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