At the beginning of 2018, England Dresses has an inventory of $75,000. However, management wants to reduce the amount of inventory on hand to $35,000 at December 31. If net sales for 2018 are forecast at $220,000 and the gross profit rate is expected to be 22%, compute the cost of the merchandise which management should expect to purchase during 2018. (Hint: First compute the expected cost of goods sold.)

Question

Brooklynn Kaufman

Business

30 April, 09:17

At the beginning of 2018, England Dresses has an inventory of $75,000. However, management wants to reduce the amount of inventory on hand to $35,000 at December 31. If net sales for 2018 are forecast at $220,000 and the gross profit rate is expected to be 22%, compute the cost of the merchandise which management should expect to purchase during 2018. (Hint: First compute the expected cost of goods sold.)

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Linda Frederick · Answer 1

The cost of the merchandise which management should expect to purchase during 2018: $131,600

Explanation:

Net sales for 2018 are forecast at $220,000 and the gross profit rate is expected to be 22%.

The expected Gross profit = 22% x $220,000 = $48,400

The expected Cost of goods sold = Net sales - The expected Gross profit = $220,000 - $48,400 = $171,600

The cost of the merchandise expected to purchase during 2018 = Inventory on hand at December 31 + The expected Cost of goods sold in 2018 - Inventory at the beginning of 2018 = $35,000 + $171,600 - $75,000 = $131,600