Executive officers of Solomon Company are wrestling with their budget for the ne

Question

Executive officers of Solomon Company are wrestling with their budget for the next year. The following are two different sales estimates provided by two difference sources:

Solomon’s past experience indicates that cost of goods sold is about 65 percent of sales revenue. The company tries to maintain 15 percent of the next quarter’s expected cost of goods sold as the current quarter’s ending inventory. This year’s ending inventory is $22,000. Next year’s ending inventory is budgeted to be $23,000.

Required

Prepare an inventory purchases budget using the sales manager’s estimate.

Prepare an inventory purchases budget using the marketing consultant’s estimate. Complete this question by entering your answers in the tabs below.

Required A

Required B

Prepare an inventory purchases budget using the sales manager’s estimate. (Round your final answers to nearest whole dollar amount.)

Prepare an inventory purchases budget using the marketing consultant’s estimate. (Round your final answers to nearest whole dollar amount.)

Source of Estimate First Quarter Second Quarter Third Quarter Fourth Quarter Sales manager $ 384,000 $ 315,000 $ 282,000 $ 483,000 Marketing consultant 525,000 458,000 412,000 648,000

Explanation / Answer

Inventory Purchase Budget - Sales Manager's Estimate First Quarter Second Quarter Third Quarter Fourth Quarter Sales                   384,000                       315,000                     282,000                       483,000 Budgeted Cost of Goods Sold - 65% of Sales                   249,600                       204,750                     183,300                       313,950 Add: Desired Ending Inventory                     30,713                          27,495                       47,093                         23,000 Total Inventory Needed                   280,313                       232,245                     230,393                       336,950 Less: Beginning Inventory                   (22,000)                       (30,713)                     (27,495)                       (47,093) Required Purchases                   258,313                       201,532                     202,898                       289,857 Inventory Purchase Budget - Marketing Consultant's Estimate First Quarter Second Quarter Third Quarter Fourth Quarter Sales                   525,000                       458,000                     412,000                       648,000 Budgeted Cost of Goods Sold - 65% of Sales                   341,250                       297,700                     267,800                       421,200 Add: Desired Ending Inventory                     44,655                          40,170                       63,180                         23,000 Total Inventory Needed                   385,905                       337,870                     330,980                       444,200 Less: Beginning Inventory                   (22,000)                       (44,655)                     (40,170)                       (63,180) Required Purchases                   363,905                       293,215                     290,810                       381,020

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