Spelling Company has the following sales projection (in units) for the next six

Question

Spelling Company has the following sales projection (in units) for the next six months: Feb: 9500 Mar: 11000 Apr: 8500 May: 12000 Jun: 10000 Jul: 7500 Each unit sells for $30. Spelling has prepared the following sales budget for the quarter of April, May and June: Sales Budget April May June Total Sales in units 8500 12000 10000 30500 Selling price per unit x $30 x $30 x $30 Sales revenue $255000 $360000 $300000 $915000 Spelling's cost of goods sold is 60% of its sales revenue. The company has a policy that it keeps 10% of next months budgeted cost of goods sold as ending inventory. The company had exactly the budgeted amount of inventory on hand at April 1. Prepare a purchases budget on paper or, PREFERABLY, in Excel for the quarter of April, May and June. (If you build your schedule using formulas in excel, multiple attempts will be much faster.) What is the cost of inventory at April 1 (Beginning inventory) What is the budgeted cost of purchases in June? What is the desired cost of inventory at the end of the quarter?

Explanation / Answer

MATERIAL PURCHASE BUDGET APRIL MAY JUNE QUARTER JULY Budgeted Sales units 8,500 12,000 10,000 30,500 7,500 Sales price per unit 30 30 30 30 30 Budgeted Sales in $ 255,000 360,000 300,000 915,000 225,000 Cost of goods sold ratio 60% 60% 60% 60% 60% Budgeted cost of goods sold 153,000 216,000 180,000 549,000 135,000 Add: Desired Ending Inventory 21,600 18,000 13,500 13,500 Total needs 174,600 234,000 193,500 562,500 Less: Beginning Inventory 15,300 21,600 18,000 15,300 Budgeted Purchase in $ 159,300 212,400 175,500 547,200 Budgeted Cost of Sales for Quarter: $ 549,000 Ending inventory at the end of Quarter: $ 13500

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