Chapter 6, Problem 6.26AE

LO 5

(Learning Objective 5: Use the COGS model to make management decisions) McGuire Industries prepares budgets to help manage the company. McGuire is budgeting for the fiscal year ended January 31, 2018. During the preceding year ended January 31, 2017, sales totaled $9,200 million and cost of goods sold was $6,300 million. At January 31, 2017, inventory was $1,700 million. During the upcoming 2018 year, suppose McGuire expects cost of goods sold to increase by 12%. The company budgets next year’s ending inventory at $2,000 million.

Requirement

  1.    One of the most important decisions a manager makes is how much inventory to buy. How much inventory should McGuire purchase during the upcoming year to reach its budget?