Question

Patiomaster Products manufactures patio furniture. The estimated numbers of sets to be sold for the last three months of 2020 is:

Month	Sales
October	10,000
November	7,000
December	5,000
January	6,000

Finished goods inventory at the end of September is expected to be 3,000 units. Finished goods inventory is set at 30 percent of next month's sales.

If a patio set costs $100 to produce, what will be the cost of sales in the budgeted income statement for the period October to December 2020?

Select one:

a. $1,900,000

b. $1,800,000

c. none of these

d. $2,200,000

e. $2,800,000

Answer 1

Answer:

Calculation of the cost of sales in the budgeted income statement for the period October to December 2020:

Particulars	October	November	December	October - December
Estimated sets to be sold	10,000	7,000	5,000	22,000
Less: Opening finished goods inventory	(3,000)	(2,100)	(1,500)	(6,600)
Add: Ending finished goods inventory	2,100	1,500	1,800	5,400
Production (a)	9,100	6,400	5,300	20,800
Production cost per sets (b)	$100	$100	$100	$100
Production cost (a x b)	$910,000	$640,000	$530,000	2,080,000

Accordingly, $2,080,000 is the cost of sales in the budgeted income statement for the period October to December 2020 & therefore option (c) none of these is the correct answer.