Question

Exercise 14-7 Preparing an inventory purchases budget LO 14-3

Finch Company sells lamps and other lighting fixtures. The purchasing department manager prepared the following inventory purchases budget. Finch’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 $80,000.

Required

1. Complete the inventory purchases budget by filling in the missing amounts.
2. Determine the amount of cost of goods sold the company will report on its first quarter pro forma income statement.
3. Determine the amount of ending inventory the company will report on its pro forma balance sheet at the end of the first quarter.

Complete this question by entering your answers in the tabs below. Req A Req B and C Complete the inventory purchases budget by filling in the missing amounts. March $ 63,000 Inventory Purchases Budget January February Budgeted cost of goods sold $ 53,000 $ 57,000 Plus: Desired ending inventory 5,700 Inventory needed 58,700 Less: Beginning inventory 5,300 Required purchases (on account) $ 53,400 - Req A Req B and C> Complete this question by entering your answers in the tabs below. Req A Req B and C Determine the amount of cost of goods sold the company will report on its first quarter pro forma income statement. Determine the amount of ending inventory the company will report on its pro forma balance sheet at the end of the first quarter. b. Cost of goods sold c. Ending inventory < Req A Reg B and C >

Answer 1

Inventory Purchases Budget January February March Budgeted Cost of Goods Sold $ 53,000 $ 57,000 $ 63,000 Plus: Desired Ending Inventory $ 5,700 $ 6,300 $ 8,000 Inventory Needed $ 58,700 $ 63,300 $ 71,000 Less : Beginning Inventory $ (5,300) $ (5,700) $ (6,300) Required Purchases (on account) | $ 53,400 $ 57,600 $ 64,700 Working Notes: Ending Inventory = 10% of following month Cost of Goods Sold Ending Inventory for the month of Februrary ($ 63000 *10%) March ( $ 80000 *10%) $ $ 6,300 8,000 Note : Ending inventory of current month is the beginning inventory of following month.

Cost of Goods Sold $ 173,000 Cost of Goods Sold for the first quarter January February March Total Cost of Goods Sold $ $ $ $ 53,000 57,000 63,000 173,000 Ending Inventory $ 8,000 Ending Inventory = 10% of following month Cost of Goods Sold Ending inevntory for the first quarter ended = Cost of Goods sold of April * 10% Therefore. Ending inventory for March = $ 80000 *10% = $ 8000