Question

Brownsville Novelty Store prepared the following budget information for the month of May: Sales are budgeted at $381,000. All sales are on account and a provision for bad debts is made for each month at three percent of sales for the month. Inventory was $104,000 on April 30; an inventory increase of $16,000 is planned for May 31. All inventory is marked to sell at cost plus 50 percent. Estimated cash disbursements for selling and administrative expenses for the month are $68,000. Depreciation for May is projected at $8,000. Brownsville's budgeted cost of inventory purchases for May is:

Answer 1

Step 1) Sales = Cost + 50% markup on cost

            381000 = C + (.50 *C)

            381000 = 1.50 C

            C = 381000 /1.50

               = 254000

So cost of goods sold = $ 254000

Step 2 )Ending inventory =beginning inventory + planned increase

                           = 104000+16000

                           = 120000

Now

Ending inventory = Beginning inventory + purchase- cost of goods sold

             120000 = 104000 + P - 254000

              120000 = p - 150000

              P = 120000+150000

                 = $ 270000

Purchase / budgeted cost of inventory purchases for May = $ 270000