At the beginning of 2018, England Dresses has an inventory of $75,000. However, management wants to reduce the amount of inventory on hand to $35,000 at December 31. If net sales for 2018 are forecast at $220,000 and the gross profit rate is expected to be 22%, compute the cost of the merchandise which management should expect to purchase during 2018. (Hint: First compute the expected cost of goods sold.)

$136600

Explanation:

Given:

We need to find the gross profit via the given information of net sales and gross profit rate

<=> gross profit = net sales*gross profit rate  

= $220,000* 22%

= $48,400

Moreover, Cost of goods sold is = sales - gross profit

<=>  Cost of goods sold = $220,000 -  $48,400 = $171,600

But Cost of goods sold = opening inventory + purchases - closing inventory

<=>    purchases = Cost of goods sold - opening inventory + closing inventory

= $171,600 - $75,000 + ($75,000 - $35,000)

= $136600

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