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 an ending inventory balance equal to 10 percent of the following month's cost of good sold. April's budgeted cost of goods sold is $75,000 January February March Budgeted cost of good 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 ? ? 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 first quarter 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

Important points (WN1)Naftel's policy is to maintain an ending inventory balance equal to 10 percent of the following month's cost of good sold. (WN2)Ending inventory of previous month will be begining inventory of this month. Particulars January February March Budgeted COGS 50,000 54,000 60,000 Desired ending inventory 5,400 6000 7500 (75000 x 10%) (-)Begining inventory 5,000 5400 6000 (see WN2) ------------------------------------------------------------------------------------------- Required purchases 50400 54600 61500 ------------------------------------------------------------------------------------------ B)Determine the amount of cost of goods sold the company will report on its first quarter pro forma income statement. = (50,000+54,000+60,000) = 164000 c)Determine the amount of ending inventory the company will report on its pro forma balance sheet at the end of the first quarter. The inventory is the March month ending inventory = $7500

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