Question

Big Sound, a merchandising company specializing in home computer speakers, budgets its monthly cost of goods sold to equal 70% of sales. Its inventory policy calls for ending inventory at the end of each month to equal 20% of the next month's budgeted cost of goods sold. All purchases are on credit, and 25% of the purchases in a month is paid for in the same month. Another 60% is paid for during the first month after purchase, and the remaining 15% is paid for in the second month after purchase. The following sales budgets are set: July, $350,000; August, $290,000; September, $320,000; October, $275,000; and November, $265,000. (Hint: For part 1, refer to Exhibits 22A.2 and 22A.3 for guidance, but note that budgeted sales are in dollars for this assignment.) (1) Compute the budgeted merchandise purchases for July, August, September, and October. July August September Budgeted ending inventory October November Required available inventory Cost of goods sold (estimated) Required purchases $ 0 $ 0 $ 0 $ 0 October After October (2) Compute the budgeted payments on accounts payable for September and October. ---------- Purchases paid in ------ Purchases August September July purchases August purchases September purchases October purchases

Answer 1

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Big Sound
Cost of Goods sold Budget	July	August	September	October	November	Note
Budgeted Sales Revenue	350,000.00	290,000.00	320,000.00	275,000.00	265,000.00	A
Cost of Goods sold is 70%	245,000.00	203,000.00	224,000.00	192,500.00	185,500.00	B= A*70%
Answer 1
Purchases Budget	July	August	September	October	November
Cost of Goods sold	245,000.00	203,000.00	224,000.00	192,500.00	185,500.00	See B
Add: Ending Inventory	40,600.00	44,800.00	38,500.00	37,100.00		C= 20% of B of next month.
Inventory Available	285,600.00	247,800.00	262,500.00	229,600.00		D= B+C
Less: Opening	49,000.00	40,600.00	44,800.00	38,500.00		E= 20% of B of same month.
Required Purchases	236,600.00	207,200.00	217,700.00	191,100.00		F= D-E
Answer 2		Purchases Paid in
Payment Budget	Purchases	August	September	October	After October
July Purchases	236,600.00	141,960.00	35,490.00			60% paid in August, remaining 15% paid in September.
August Purchases	207,200.00	51,800.00	124,320.00	31,080.00		25% paid in August, 60% paid in September, remaining 15% paid in October.
September Purchases	217,700.00		54,425.00	130,620.00		25% paid in September, 60% paid in October.
October Purchases	217,700.00			54,425.00		25% paid in October.
Total		193,760.00	214,235.00	216,125.00
Answer 3
September	Purchases	% Unpaid as of September	Amount Unpaid as of September
July Purchases	236,600.00	0%	-
August Purchases	207,200.00	15%	31,080.00
September Purchases	217,700.00	75%	163,275.00
September 30 budgeted accounts payable			194,355.00
October	Purchases	% Unpaid as of September	Amount Unpaid as of September
July Purchases	236,600.00	0%	-
August Purchases	207,200.00	0%	-
September Purchases	217,700.00	15%	32,655.00
October Purchases	191,100.00	75%	143,325.00
October 31 budgeted accounts payable			175,980.00