Manoli Gift Shop maintains a 35% gross profit margin percentage, and carries an ending inventory balance each month sufficient to support 30% of the next month’s expected sales. Anticipated sales for the fourth quarter are as followsOctober $42,000November 58,000December 74,000What amount of goods should Manoli Gift Shop plan to purchase during the month of November?
Question
Manoli Gift Shop maintains a 35% gross profit margin percentage, and carries an ending inventory balance each month sufficient to support 30% of the next month’s expected sales. Anticipated sales for the fourth quarter are as followsOctober $42,000November 58,000December 74,000What amount of goods should Manoli Gift Shop plan to purchase during the month of November?
Solution
To calculate the amount of goods Manoli Gift Shop should plan to purchase during the month of November, we need to follow these steps:
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Calculate the cost of goods sold (COGS) for November. Since the gross profit margin is 35%, the COGS is 65% (100% - 35%) of the sales. So, for November, the COGS is 37,700.
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Calculate the ending inventory for November, which should be sufficient to support 30% of December's sales. So, the ending inventory for November is 22,200.
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The amount of goods to purchase in November is the sum of the COGS for November and the ending inventory for November, minus the beginning inventory for November (which is the ending inventory for October). The ending inventory for October is 30% of November's sales, which is 17,400.
So, the amount of goods to purchase in November is 22,200 (ending inventory for November) - 42,500.
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