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19 July, 09:45

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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  1. 19 July, 11:45
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    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
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