Exercise 7-7A Preparing an inventory purchases budget LO 7-3 Benson Company sell

Question

Exercise 7-7A Preparing an inventory purchases budget LO 7-3 Benson Company sells lamps and other lighting fixtures. The purchasing department manager prepared the following inventory purchases budget. Benson's policy is to maintain an ending inventory balance equal to 10 percent of the following month's cost of goods sold. April's budgeted cost of goods sold is $84,000. Required a. Complete the inventory purchases budget by filling in the missing amounts. b. Determine the amount of cost of goods sold the company will report on its first quarter pro forma income statement. c. Determine the amount of ending inventory the company will report on its pro forma balance sheet at the end of the first quarter.

Explanation / Answer

PART A

Inventory purchase budget

January

February

march

Budgeted cost of goods sold

56000

60000

66000

Plus: desired ending inventory

6000

(60000*10%)

6600

(66000*10%)

8400

(84000*10%)

Inventory needed

62000

66600

74400

Less: beginning inventory

5600

(56000*10%)

6000

(60000*10%)

6600

(66000*10%)

Required purchases (on account)

56400

60600

67800

Ending inventory of last year is the beginning inventory of the current year.

PART B and C

Cost of goods sold = 182000 (56000+60000+66000)

Ending inventory = 8400 (ending inventory of march is ending inventory of quarter)

Inventory purchase budget

January

February

march

Budgeted cost of goods sold

56000

60000

66000

Plus: desired ending inventory

6000

(60000*10%)

6600

(66000*10%)

8400

(84000*10%)

Inventory needed

62000

66600

74400

Less: beginning inventory

5600

(56000*10%)

6000

(60000*10%)

6600

(66000*10%)

Required purchases (on account)

56400

60600

67800

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