Question

he following is known for Tourist Trinkets, Inc:

1. • One half of all sales are on credit.
   • Of the credit sales, 75% are collected in the same month and 25% in the next month
   • The total sales for June were $125,000 and expected sales are $160,000 in July and $130,000 in August
   • The desired ending inventory is 15% of next month's sales in units at the end of each month
   • The gross margin percentage is 40%
   • The payments to suppliers are: 70% in same month and 30% in the following month
   • Total monthly fixed selling and administrative costs are $25,000; of this amount, depreciation expense is $10,000
   • All cash expenses are paid in the month incurred.
   • Variable selling and administrative costs are $2 per unit and are paid in month incurred
   • The unit sales price is $16 per unit
   • TT plans to buy a small parcel of land at the end of July for $15,000 with cash.
   • The cash balance of July 1 was $70,000.

a. What were purchases in June and what are expected purchases in July? $________________ Show supporting work. Check figure for June purchases: $78,150.

Answer 1

Purchase = Cost of goods sold+Desired ending inventory-Beginning inventory

a) June purchase = (125000*60%)+(160000*60%*15%)-(125000*60%15%) = 78150

July Purchase = (160000*60%)+(130000*60%*15%)-(160000*60%*15%) = 93300