Caskill Company forecasts 40000 of sales in January 38000 in

Caskill Company forecasts $40,000 of sales in January, $38,000 in February, $30,000 in March, and $32,000 in April. Cost of goods sold is budgeted at 75% of sales. Caskill should have inventory on hand at the end of each month equal to $5,000 plus 20% of the following month\'s cost of goods sold.
How much are budgeted purchases for February?

Solution

Inventory:
at jan 31 - 5,000 + 5700 (20% of March CGS of .75*38000=28500) = 10700
at feb 28 - 5,000 + 4500 (20% of April CGS of .75*30000=22500) = 9500

feb - Beg Inv 10700 + Purchases - CGS 28500 = 9500 End Inv
feb Purchases will be 27300