"The gross profit rate is 50% of sales and ending inventory at December 31 was $27,500. Desired ending inventory levels are 30% of next month's sales at cost. What are the expected total purchases for February?"

B) $81,360  

Explanation:

Data in the Question was missing, a similar question with different values is given below and answer is made accordingly.

Month Budgeted Sales January $108,000 February 132,000 March 144,000 April 120,000 The gross profit rate is 40% of sales and ending inventory at December 31 was $19,440. Desired ending inventory levels are 30% of next month's sales at cost. What are the expected total purchases for February?

A) $79,200

B) $81,360

C) $102,960

D) $105,120

Solution

As we Know the formula of Cost of Goods Sold is as Follow

Cost of Goods Sold = Beginning Inventory + Purchases - Closing Inventory

So,

Purchases =  Cost of Goods Sold - Beginning Inventory + Closing Inventory

                                       January     February     March         April

Sales                               $108,000  $132,000    $144,000   $120,000

Less:Gross profit 40%   $43,200    $52,800      $57,600    $48,000

= Cost of Goods Sold    $64,800    $79,200      $86,400    $72,000

-Beginning Inventory     $19,440     $23,760      $25,920    $21,600

+Ending Inventory 30% $23,760    $25,920      $21,600      NA

= Purchases                   $69,120    $81,360       $82,080

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