Barrett's Fashions forecasts sales of $125,000 for the quarter ended December 31. Its gross profit rate is 20% of sales, and its September 30 inventory is $32,500. If the December 31 inventory is targeted at $41,500, budgeted purchases for the fourth quarter should be:
a. $134,000b. $109,000c. $91,500d. $25,000e. $91,000

The correct answer is option (b).

Explanation:

According to the scenario, computation of the given data are as follows:

September.30 inventory = $32,500

Required Dec.31 inventory = $41,500

Let the budgeted purchases for the fourth quarter = P

So, we can calculate the budget purchase by using following formula:

Required Dec.31 inventory = Sep.30 inventory + P - COGS

Where, COGS = $125,000 × 0.8

So, by putting the value, we get

$41,500 = $32,500 + P - $125,000 × 0.8  

P = $109,000

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