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)