Hardy Company’s cost of goods sold is consistently 60% of sales. The company pla

Question

Hardy Company’s cost of goods sold is consistently 60% of sales. The company plans ending merchandise inventory for each month equal to 30% of the next month’s budgeted cost of goods sold. All merchandise is purchased on credit, and 40% of the purchases made during a month is paid for in that month. Another 45% is paid for during the first month after purchase, and the remaining 15% is paid for during the second month after purchase. Expected sales are: August (actual), $425,000; September (actual), $360,000; October (estimated), $340,000; and November (estimated), $390,000.

Use this information to determine October’s expected cash payments for purchases.

Explanation / Answer

August September October November Sales 425000 360000 340000 390000 Cost of goods sold (estimated) 255000 216000 204000 234000 Budgeted ending inventory 64800 61200 70200 Required available inventory 319800 277200 274200 Less: Budgeted Beginning inventory 76500 64800 61200 Required purchases 243300 212400 213000 ­­­­­­­­­­ Purchases paid in ­­­­­­­­­­­­­­­ August September October After October August purchases 97320 109485 36495 September purchases 84960 95580 31860 October purchases 85200 127800 97320 194445 217275 159660 October's expected cash payments for purchases $217275

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