Reference no: EM132751162

Problem 1: 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.

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)