E22-31 Preparing an operating budget-inventory, purchases, and cost of Lea goods

Question

E22-31 Preparing an operating budget-inventory, purchases, and cost of Lea goods sold budget Slate, Inc. sells tire rims. Its sales budget for the nine months ended September 30, 2018, follows: Qtr $75 Nine-Month Total Quarter Ended June 30 $ 38,000 152,000 September 30 $ 33,000 132,000 $165,000 March 31 Cash sales, 20% Credit sales, 80% Total sales $28,000 112,000 $ 140,000 190,000 $ 99,000 396,000 $ 495,000 In the past, cost of goods sold has been 40% of total sales. The director of market- ing and the financial vice president agree that each quarter's ending inventory should not be below S5 000 plus 10% of cost of goods sold for the following quarter. The marketing director expects sales of $240,000 during the fourth quarter. The January 1 inventory was $38,000. Prepare an inventory, purchases, and cost of goods sold bud- get for each of the first three quarters of the year. Compute cost of goods sold for the entire nine-month period.

Explanation / Answer

Calculate cost of goods sold :

March 31 June 30 September 30 Entire 9 month Sales 140000 190000 165000 495000 Ratio 40% 40% 40% 40% Cost of good sold 56000 76000 66000 198000

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