Question

Exercise 5-2

Redlands, Inc. expects cost of goods sold to equal 60% of sales revenue. Management also established required inventory amounts for the end of each quarter as noted below. The firm’s partially completed purchases budget is as follows:

	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter		Annual
Sales revenue	$200	$300	$300	$400		$1,200
Cost of sales
+ Ending inventory	40	60	70	80
Inventory required
- Beginning inventory	30
Purchases

Required: Complete the purchases budget above.

Answer 1

		1st Quarter	2nd Quarter	3rd Quarter	4th Quarter	Annual
	Sales revenue	200	300	300	400	1200
	Cost of sales	120	180	180	240	720
Add:	Ending Inventory	40	60	70	80	250
	Inventory required	160	240	250	320	970
Less:	Beginning Inventory	30	40	60	70	200
	Purchases	130	200	190	250	770
	Workings:
	Cost of sales	200 X 60%	300 X 60%	300 X 60%	400 X 60%
	Beginning Inventory	=	Ending Inventory of previous quarter

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