Montel Company’s July sales budget calls for sales of $630,000. The store expects to begin July with $63,000 of inventory and to end the month with $37,000 of inventory. Gross margin is typically 20% of sales. Determine the budgeted cost of merchandise purchases for July.

Budgeted cost of merchandise purchases =$499,000

Explanation:

The expected units of a product that a business estimates to purchase given its sales budget and inventory is known as the purchases budget.  

The purchases budget can bed determined by adjusting the sales budget for closing and opening inventories.  

Purchases budget = Sales budget +closing inventory - opening inventory  

Note that the sales was given in selling price terms while the inventories in cost terms, hence there is a need to work out the cost of the sales using the 20% margin

Cost of the sales = 100/120×  630,000 =$ 525000

Opening inventory =63,000

Closing inventory = 37,000

Budgeted cost of merchandise purchases:

= 525000  + 37,000 - 63,000= $499,000

Budgeted cost of merchandise purchases =$499,000

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