Question

Humboldt, Inc. sells fireworks. The company's marketing director developed the following cost of goods sold budget for April, May, June, and July Budgeted cost of goods sold April $37,500 May $34,000 June $30,000 July $45,000 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

1) Inventory purchase budget

	April	May	June
Cost of goods sold	37500	34000	30000
Ending inventory	3400	3000	4500
Inventory needed	40900	37000	34500
Beginning inventory	-1800	-3400	-3000
Required purchase	39100	33600	31500

2) Ending inventory = $4500

3) Schedule of cash payment

	April	May	June
Payment of current account payable	23460	20160	18900
Payment of previous account payable	7400	15640	13440
Total budgeted payments for inventory	30860	35800	32340

4) Account payable = 31500*40% = 12600