Adams, Inc. sells fireworks. The company’s marketing director developed the following cost of goods sold budget for April, May, June, and July.
|Budgeted cost of goods sold||$69,000||$79,000||$89,000||$95,000|
Adams had a beginning inventory balance of $4,500 on April 1 and a beginning balance in accounts payable of $14,300. The company desires to maintain an ending inventory balance equal to 10 percent of the next period’s cost of goods sold. Adams makes all purchases on account. The company pays 65 percent of accounts payable in the month of purchase and the remaining 35 percent in the month following purchase.
Prepare an inventory purchases budget for April, May, and June.
Determine the amount of ending inventory Adams will report on the end-of-quarter pro forma balance sheet.
Prepare a schedule of cash payments for inventory for April, May, and June.
Determine the balance in accounts payable Adams will report on the end-of-quarter pro forma balance sheet.
a) Inventory purchases budget
|Cost of goods sold||69000||79000||89000|
|Add: Desired ending inventory||7900||8900||9500|
|Less: Beginning inventory||-4500||-7900||-8900|
b) Ending inventory = $9500
c) Schedule of Cash payment
|Current month purchase||47060||52000||58240|
|Previous month purchase||14300||25340||28000|
|Total Cash payment||61360||77340||86240|
Account payable = 89600*35% = 31360
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