A trader has budgeted sales for the coming year of $275. He achieves a constant mark-up of 25%. He plans to reduce his inventory level by $14 over the year.
What will his purchases for the year be?
I am unsure how the answer is 206.
If COGS was calculated to be 220.
COGS= opening + purchases - closing and if I plan on reducing inventory,
then shouldn't it be:
220= purchases - 14?
Would appreciate your help figuring out the correct way to answer this question!
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Inventory
3y ago#1The cost of sales this year is 100/125 x 275 = 220.
They are reducing the inventory by 14, and so 14 of the cost of sales is covered by the reduction in inventory.
The remainder (220 - 14 = 206) is the amount that they need to purchase this year.
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