XYZ Company prices its products by adding 30% to its cost

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XYZ Company prices its products by adding 30% to its cost. XYZ anticipates sales of $715,000 in March, $728,000 in April, and $624,000 in May. XYZ's policy is to have on hand enough inventories at the end of the month to cover 25% of the next month's sales. What will be the cost of the inventory that ABC should budget for purchases in April? Please and explain your work.

Solution:

Cost of Inventory = Sales price/1.3

March cost of inventory

$715,000/1.3

$550,000

April cost of inventory

$728,000/1.3

$560,000

May cost of inventory

$624,000/1.3

$480,000

Ending Inventory = Beginning inventory + purchases - cost of goods sold (cogs)

April ending inventory

$480,000 x 25%

$120,000

Beginning inventory

$560,000 x 25%

$140,000

$120,000 = $140,000 + purchases - cost of goods sold (cogs)