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 to carry ending merchandise inventory for each month equal to 20% of the next month’s budgeted cost of good sold. All merchandise is purchased on credit, and 50% of the purchases made during a month is paid for in that month. Another 35% 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), $325,000; September (actual), $320,000; October (estimated), $250,000; November (estimated), $310,000.

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

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

Explanation / Answer

computation of cash budget

particulars august september october 1.sales $ 325,000 $ 320,000 $ 250,000 2.cost of goods sold(1*60%) $ 195,000 $ 192,000 $ 150,000 3.opening inventory (2*20%) $ (39,000) $ (38,400) $ (30,000) 4.closing inventory $ 38,400 $ 30,000 $ 310,000*60%*20%=$ 37,200 5.required purchases (2+4-3) $ 194,400 $ 183,600 $ 157,200 6.payment of october =194,400*15%+183,600*35%+157,200*50%=$ 172,020

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