Question

Peabody, Inc., sells fireworks. The company's marketing director developed the following cost of goods sold budget for April, May, June, and July. April Budgeted cost of goods $70.000 sold May $80,000 June $90,000 July $96,000 Peabody had a beginning inventory balance of $2,600 on April 1 and a beginning balance in accounts payable of $15,200. The company desires to maintain an ending inventory balance equal to 20 percent of the next period's cost of goods sold. Peabody makes all purchases on account. The company pays 70 percent of accounts payable in the month of purchase and the remaining 30 percent in the month following purchase. Required a. Prepare an inventory purchases budget for April, May, and June. Inventory Purchases Budget Budgeted cost of goods sold April 70,000 May 80,000 June 90,000 $ $ $ Inventory needed 70,000 80,000 90,000 Required purchases (on account) $ 70,000 $ 80,000 $ 90,000

Answer 1

a) Inventory purchase budget

	April	May	June
Budgeted cost of goods sold	70000	80000	90000
Add: Desired ending inventory	16000	18000	19200
Total	86000	98000	109200
Less: Beginning inventory	-2600	-16000	-18000
Required purchase	83400	82000	91200

b) Ending inventory = $19200

c) Schedule of cash payment

	April	May	June
Payment of current account payable	58380	57400	63840
Payment of previous account payable	15200	25020	24600
Total cash payment	73580	82420	88440

d) Account payable = 91200*30% = $27360