Question

Solomon Company sells lamps and other lighting fixtures. The purchasing department manager prepared the following inventory purchases budget. Solomon’s policy is to maintain an ending inventory balance equal to 15 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.

   	b. Cost of goods sold c. Ending inventory

Complete the inventory purchases budget by filling in the missing amounts.

	Inventory Purchases Budget January February March Budgeted cost of goods sold $56,000 $60,000 $66,000 Plus: Desired ending inventory 9,000 Inventory needed 65,000 Less: Beginning inventory 8,400 Required purchases (on account) $56,600

Answer 1

Solution

Inventory Purchases Budget
	January	February	March
Budgeted cost of goods sold	$ 56,000.00	$ 60,000.00	$ 66,000.00
Plus: Desired ending inventory	$     9,000.00	$     9,900.00	$ 12,000.00*
Inventory required	$ 65,000.00	$ 69,900.00	$ 78,000.00
Less: Beginning inventory	$     8,400.00	$     9,000.00	$     9,900.00
Required Purchases (on account)	$ 56,600.00	$ 60,900.00	$ 68,100.00

*80000 x 15%

.

b	Cost of goods sold	$    182,000.00
c	Ending Inventory	$         9,900.00

Cost of goods sold is total of all three month and ending inventory of quarter is ending inventory of march.