Question

Big Apple Sporting Goods is a retail store that sells a variety of sports equipment. The company’s fiscal year ends on December 31. Information to be used for the operating budget this coming year follows.

Sales and Merchandise Purchases Budget Information

• Sales for this coming year ending December 31 are expected to be as follows:

First quarter	$600,000
Second quarter	$650,000
Third quarter	$660,000
Fourth quarter	$800,000

• Cost of goods sold is 40 percent of sales (this is the first line of the merchandise purchases budget). Merchandise inventory is maintained at a level equal to 20 percent of the next quarter’s cost of goods sold. Merchandise inventory at the end of the fourth quarter budget period is estimated to be $55,000.

• 	Quarter
  	1	2	3	4	Year Total
  Sales revenue
  	Quarter
  	1	2	3	4	Year Total
  Budgeted cost of goods sold
  Add desired ending merchandise inventory
  Total merchandise inventory needed
  Deduct beginning merchandise inventory
  Merchandise to be purchased

Answer 1

• Requirement asked

	Q1	Q2	Q3	Q4	Year
Budgeted Cost of Goods Sold	$240,000	$260,000	$264,000	$320,000	$1,084,000
Add: Desired ending merchandise inventory	$52,000	$52,800	$64,000	$55,000	$55,000
Total merchandise inventory needed	$292,000	$312,800	$328,000	$375,000	$1,139,000
Deduct Beginning merchandise inventory	$48,000	$52,000	$52,800	$64,000	$48,000
Merchandise to be purchased	$244,000	$260,800	$275,200	$311,000	$1,091,000

--Working

		Q1	Q2	Q3	Q4	Year
A	Sales Revenue	$600,000	$650,000	$660,000	$800,000	$2,710,000
B	Cost of Goods Sold rate	40%	40%	40%	40%	40%
C = A x B	Cost of Goods Sold total	$240,000	$260,000	$264,000	$320,000	$1,084,000