DGT Industries expects to sell 470 units of Product A and 410 units of Product B each day at an average price of $25 for Product A and $28 for Product B

Question

The expected cost for Product A is 45% of its selling price and the expected cost for Product B is 65% of its selling price. DGT Industries has no beginning inventory, but it wants to have a four-day supply of ending inventory for each product. Compute the budgeted purchases for the next (seven-day) week. (Round the answer to the nearest dollar.)
A) $89,247
B) $92,920
C) $162,610
D) $140,245

Answer 1

D .D) Purchases = Cost of goods sold + Ending merchandise inventory - Beginning merchandise inventory
Cost of goods sold:
Product A: ($25 x 45%) x (470 units x 7 days) = $37,013
Product B: ($28 x 65%) x (410 units x 7 days) = $52,234
Total cost of goods sold: $37,013 + $52,234= $89,247

Desired ending inventory: (Daily sales x 4 days) x (Selling price x % expected cost)
Product A: (470 x 4 ) x ($25 x 45%) = $21,150
Product B: (410 x 4 ) x ($28 x 65%) = $29,848
Total Desired ending inventory: $21,150 + $29,848 = $50,998

Purchases: Cost of goods sold + Ending merchandise inventory - Beginning merchandise inventory
Product A: $37,013 + $21,150 - 0 = $58,163
Product B: $52,234 + $29,848 - 0 = $82,082
Total budgeted purchases: $58,163 + $82,082 = $140,245