On Dec 31, 2011, Yellow HArdware has inventory of $25,000. The owner wants to increase inventory on hand to $35,000 on Dec 31 2012. If net sales for 2012 are expected to be 150,000 and the gross profit is expected to be 35% of net sales, compute the net cost of merchandise the owner should expect to purchase during 2012.
On Dec 31, 2011, Yellow HArdware has inventory of $25,000. The owner wants to increase inventory on hand to $35,000 on Dec 31 2012. If net sales for 2012 are expected to be 150,000 and the gross profit is expected to be 35% of net sales, compute the net cost of merchandise the owner should expect to purchase during 2012.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
On Dec 31, 2011, Yellow HArdware has inventory of $25,000. The owner wants to increase inventory on hand to $35,000 on Dec 31 2012. If net sales for 2012 are expected to be 150,000 and the gross profit is expected to be 35% of net sales, compute the net cost of merchandise the owner should expect to purchase during 2012.
Expert Solution
Step 1
The cost of goods sold refer to the cost of producing the goods which are sold during the year. The amount of purchases is calculated by deducting beginning inventory from the cost of goods sold and adding ending inventory to it.
Step 2
Net sales: $150,000
Gross profit: ($150,000×35%) = $52,500
Cost of goods sold is calculated as follows:
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