Naftel Company sells lamps and other lighting fixtures. The purchasing departmen

Question

Naftel Company sells lamps and other lighting fixtures. The purchasing department manager prepared the following inventory purchases budget. Naftel's policy is to maintain and ending inventory balance equal to 10 percent of the following month's costs of goods sold. April's budgeted cost of good sold is $75,000.

Jan. Feb. Mar.

Budgeted cost of goods sold $50,000 $54,000 $60,000

Plus: Desired ending inventory $5,400 ? ?

Inventory Needed 55,400 ? ?

Less: Beginning Inventory 5,000 ? ?

Required purchases (on account) 50,400 ? ?

Required:

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

B. Determine the amount of cost of goods sold the company will report on its pro forma income statement.

C. Determine the amount of ending inventory the company will report on its pro forma balance sheet at the end of the first quarter

Explanation / Answer

A Purchase Budget Jan Feb Mar Apr (1) Budgeted COGS           50,000       54,000       60,000       75,000 (2) Plus Desired ending inventory             5,400        6,000        7,500 (3) Inventory Needed (1+2)           55,400       60,000       67,500 (4) Less: Beginning inventory             5,000        5,400        6,000 (5) Required Purchases (3 - 4)           50,400       54,600       61,500 B Cost of goods sold Naftel will report on its pro forma income statement is                                        164,000 C Ending inventory Naftel will report on its pro forma balance sheet at the end of the first quarter is                                            7,500

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