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: 9000
Mar: 10500
Apr: 8000
May: 11500
Jun: 9500
Jul: 7000

Each unit sells for $30.

Spelling has prepared the following sales budget for the quarter of April, May and June:

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.)

1. What is the cost of inventory at April 1 (Beginning inventory)

2. What is the budgeted cost of purchases in June?

3. What is the desired cost of inventory at the end of the quarter?

Sales Budget April May June Total Sales in units 8000 11500 9500 29000 Selling price per unit x $30 x $30 x $30 Sales revenue $240000 $345000 $285000 $870000

Explanation / Answer

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Working Sales Budget Mar April May June July Quarter Sale Units 10500 8000 11500 9500 7000 29000 Selling Price per unit 30 30 30 30 30 30 Sales Revenue 315000 240000 345000 285000 210000 870000 Purchase Budget Mar April May June July Quarter Cost of Goods Sold (60% of Sales Revenue) 189000 144000 207000 171000 126000 522000 add: Ending Inventory (10% of Next Mongh COGS) 14400 20700 17100 12600 12600 Less: Beginning Inventory (Closing of the month is beginning for next) 14400 20700 17100 14400 Purchase Cost 150300 203400 166500 520200

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