Question

Cave Hardware's forecasted sales for April, May, June, and July are $190,000, $210,000, $180,000, and $230,000, respectively. Sales are 70% cash and 30% credit with all accounts receivables collected in the month following the sale. Cost of goods sold is 80% of sales and ending inventory is maintained at $35,000 plus 20% of the following month's cost of goods sold. All inventory purchases are paid 22% in the month of purchase and 78% in the following month.

What are the budgeted cash payments in June to account for the inventory purchases at Cave Hardware?

A)		$377,600
B)		$315,200
C)		$160,736
D)		$154,464

Answer 1

Solution:

Budgeted cash payments in june for inventory purchases = 78% of May's Inventory Purchases + 22% of June's Inventory Purchases

Computaion of Inventory Purchases in May and June
	April	May	June	July
Sales	$1,90,000.00	$2,10,000.00	$1,80,000.00	$2,30,000.00
Cost of Goods sold (COGS) (80% of Sales)	$1,52,000.00	$1,68,000.00	$1,44,000.00	$1,84,000.00
Ending Inventory ($35000+ 20% of following Month's COGS)	$68,600.00	$63,800.00	$71,800.00
Opening Inventory		$68,600.00	$63,800.00
Purchases (COGS + Ending inventory - Opening Inventory)		$1,63,200.00	$1,52,000.00

Therefore , Budgeted cash payments in june for inventory purchases =

= $163200*78% + $152000*22% = $127296 + $33440 = $160,736

Hence Option "c" is correct.