Question

Preparing an inventory purchases budget Lumpkin Company sells lamps and other lighting fixtures. The purchasing department manager prepared the following inventory purchases budget. Lumpkin's policy is to maintain an ending inventory balance equal to 10 percent of the following month's cost of goods sold. April's budgeted cost of goods sold is $40,000. March January February Budgeted cost of goods sold Plus: Desired ending inventory Inventory needed Less: Beginning inventory $30,000 $35,000 $32,000 3,200 33,200 6,000 Required purchases (on account) $27,200 Required a. Complete the inventory purchases budget by filling in the missing amounts. b. Determine the amount of cost of goods sold the company will report on its first quarter pro forma income statement. c. Determine the amount of ending inventory the company will report on its pro forma balance sheet at the end of the first quarter.

Answer 1

Ans 1 Particulars January February Budget Cost of Good sold $30,000 $32,000 Plus: Desired Ending Inventory $3,200 $3,500 $32000 x 10% ($35000 x 10% Inventory Needed $33,200 $35,500 Less: Beginning Inventory $6,000 $3,200 Required Purchase (on account) $27,200 $32,300 Note: Ending inventory is 10% of Next Month's Sales March Closing Stock is 10% of April Cost of Good Sold i.e. [40000 x 10%] $4000 March $35,000 $4,000 $40000 x 10%) $39,000 $3,500 $35,500 $97,000 Ans 2 Cost of Good Sold for 1st Quarter [$30000+$32000+$35000] Ans 3 Ending Inventory at the end of 1st Quarter is $4,000