DGT industries expects to sell 420 units of product a and 420 units of product b...

DGT industries expects to sell 420 units of product a and 420 units of product b each day at an average price of $18 for product a and $28 for product b . The expected cost for product a is 42% of its selling price and the expected cost for product b is 58% of its selling price. DGT industries has no beginning inventory but it wants to have a six day supply of ending inventory for each product. Compute the budgeted purchases for the next (seven day ) week. Round to nearest dollar

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Expert Solution

Purchase = cost of good sold + ending merchandise inventory - beginning merchandise inventory

Cost of good sold:
Product a =($18×42%)× (420×7)
                  = $7.56× 2940
                   = $22,226
Product b = ($28×58%) ×(420×7)
                  = $16.24× 2940
                  = $47,746
Total cost of good sold= $22,226+ $47,746
                                        = $69,972

Desired ending inventory = (Daily sales × 6 days) × (selling price × expected cost)
Product a = (420 × 6) ×( $18 × 42%)
                     = 2520 × $7.56
                     = $19,051
Product b =   (420 ×6) × ($28 × 58%)
                   =    2520 × $16.24
                   = $40,925
Total desired inventory = $19,051 + $40,925
                                         = $ 59,976

Purchase= cost of good sold + ending merchandise inventory - beginning merchandise inventory
Product a = $22,226 + $19,051-0
                   =$41,277
Product b = $47,746 + $40,925-0
                  = $ 88,671

Total budgeted purchase = $41,277 + $88,671
Total budgeted purchase = $1,29,948

ekkarill92 answered 1 year ago

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