Durango Co. desires to maintain an ending inventory equal to 10% of next month's cost of budgeted sales. Assume that Durango Co. maintained this level of ending inventory for the month of September. The cost of budgeted sales for October is $100,000 and the cost of budgeted sales for November is $200,000. Calculate required purchases for the month of October.

Required purchase for October = $110,000

Explanation:

Given:

Ending inventory = 10% of next month's budgeted sales

Budgeted sales for October = $100,000

Budgeted sales for November = $200,000

Purchase for the month of October  = ?

Calculation of Required purchase for the month of October :

Particular                                                                      Amount

Budgeted sales of October                                        $100,000

Add: Desired ending inventory($200,000 x 10%)      $20,000

Total Inventory needed                                         $120,000

Less: Beginning inventory($100,000 x 10%)        $10,000    

Required purchase for October                                 $110,000