Executive officers of Stoneham Company are wrestling with their budget for the n

Question

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

Stoneham’s past experience indicates that cost of goods sold is about 60 percent of sales revenue. The company tries to maintain 10 percent of the next quarter’s expected cost of goods sold as the current quarter’s ending inventory. This year’s ending inventory is $15,000. Next year’s ending inventory is budgeted to be $18,000.

Required

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

Prepare an inventory purchases budget using the marketing consultant’s estimate.

Source of Estimate First Quarter Second Quarter Third Quarter Fourth Quarter Sales manager $ 225,000 $ 180,000 $ 160,000 $ 270,000 Marketing consultant 300,000 240,000 210,000 350,000

Explanation / Answer

Answer to 1

Answer to 2

Particulars Q1 Q2 Q3 Q4 Sales 225000 180000 160000 270000 Cost of Goods Sold 135000 108000 96000 162000 Add: Closing Inventory
      (10% of next qtr cost of goods sold) 10800 9600 16200 18000 Less: Opening Inventory 15000 10800 9600 16200 Purchases 130800 106800 102600 163800

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