Question

Problem 14-18 Preparing an inventory purchases budget and schedule of cash payments LO 14-3 Humboldt, Inc. sells fireworks. The company's marketing director developed the following cost of goods sold budget for April, May, June, and July April May June July $37,500 $34.000 $30,000 $45,000 Budgeted cost of goods sold Humboldt had a beginning inventory balance of $1,800 on April 1 and a beginning balance in accounts payable of $7.400. The company desires to maintain an ending inventory balance equal to 10 percent of the next period's cost of goods sold. Humboldt makes all purchases on account. The company pays 60 percent of accounts payable in the month of purchase and the remaining 40 percent in the month following purchase Required a. Prepare an inventory purchases budget for April, May, and June. b. Determine the amount of ending Inventory Humboldt will report on the end of quarter pro forma balance sheet. c. Prepare a schedule of cash payments for inventory for April May and June d. Determine the balance in accounts payable Humboldt will report on the end of quarter pro forma balance sheet

Answer 1

April $ June $ A) Inventory purchases budget Budgeted cost of goods sold Add: Desired ending inventory Total Needs Less: Beginning Inventory Required purchases (on account) May 37,500 $ 3,400 40,900 1,800 39,100 $ 34,000 3,000 37,000 30,000 4,500 34,500 3,000 31,500 3,400 $ 33,600 $ Working Notes Calculation of Ending Inventory April (34,000 x 10%) May (30,000 x 10%) June (45,000 x 10%) (Next month cost of goods sold x 10%) 3,400 3,000 4,500 B) Ending Inventory $ 4,500 April $ June $ C) Schedule of Cash Payments Payment of current accounts payable Payment of previous accounts payable Total budgeted payments for inventory May 23,460 $ 7,400 30,860 $ 20,160 15,640 35,800 18,900 13,440 32,340 $ $ Working Notes April May June Required purchases on account (A) Current (A x 60%) Next Month payment (A x 40%) 39,100 23,460 15,640 33,600 20,160 13,440 31,500 18,900 12,600 D) Accounts payable $ 12,600