Gross profit rate is 30% of sales. Expected January sales are $78,000 and desired January 31st inventory is $7,500. Assuming the December 31st inventory is $6,200 what amount of purchases should this company budget for the month of January?

$55,900

Explanation:

Opening inventory - $6200

Closing inventory - $7500

Expected sales - $78000

Mark up = 30% of sales

Cost of sales =70/100*78000

$54600

Purchase = (closing inventory + cost of sales )- opening inventory

$(7500+54600)-6200

$62100-$6200 =$55900.

$53,300

Explanation:

The formula for Gross Profit is,

Sales - Cost of Goods Sold(COGS) = Gross Profit (GP)

Here we know that Gross profit is 30% of Sales, hence, Gross profit is $23,400. Therefore we now know that COGS will be $54,600.

Now to calculate purchases,

Opening Inv + Purchases - Closing Inv = COGS

7500 + X - 6200 = 54600

Hence Purchases will be = $53,300.

Hope this helps.

Thankyou.

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