Brett Inc, a retailer, expects sales to be as follows
January $500,000
February $800,000
March $600,000
April $700,000
Cost of Sales is 60% of sales.
Ending inventory is expected to equal 30% of the next month's sales. What would the purchases of inventory in February be?
The problem is VERY TRICKY and requires some careful calculations.
HELP: The problem states "Ending inventory is expected to equal 30% of the next month's sales" the problem implies but definitely does not clearly state, that we need to have enough inventory to be able to sell some of next month’s sales. If I buy something for $5 and sell it for $20 and want 30% of next month I would not need to have 30% of what I sell it to you for (which would be 30% of 20 or $6) but rather 30% of my cost to get that item to you (or 30% of $5 which is only $1.50) ---30% of my cost. This is why I give you the fact that the cost of the sales is 60% of what I sell it for.