Question

Zachary, Inc. sells fireworks. The company’s marketing director developed the following cost of goods sold budget for April, May, June, and July.

	April	May	June	July
Budgeted cost of goods sold	$79,000	$89,000	$99,000	$105,000

Zachary had a beginning inventory balance of $4,000 on April 1 and a beginning balance in accounts payable of $15,700. The company desires to maintain an ending inventory balance equal to 15 percent of the next period’s cost of goods sold. Zachary 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.  

Required

1. Prepare an inventory purchases budget for April, May, and June.

2. Determine the amount of ending inventory Zachary will report on the end-of-quarter pro forma balance sheet.

3. Prepare a schedule of cash payments for inventory for April, May, and June.

4. Determine the balance in accounts payable Zachary will report on the end-of-quarter pro forma balance sheet.

A

Inventory Purchases Budget	April	May	June
Budgeted cost of goods sold	$79,000	$89,000	$99,000
Plus: Desired ending inventory	not attempted	not attempted	not attempted
Inventory needed	79,000	89,000	99,000
Less: Beginning inventorys	not attempted	not attempted	not attempted
Required purchases (on account)	$79,000	$89,000	$99,000

B

Ending inventory

C

Schedule of Cash Payments	April	May	June
Payment of current accounts payable	not attempted	not attempted	not attempted
Payment of previous accounts payable	not attempted	not attempted	not attempted
Total budgeted payments for inventory	$0	$0	$0

D

Ending inventory

Answer 1

A

	Inventory Purchases Budget April May June Budgeted cost of goods sold $79,000 $89,000 $99,000 Plus: Desired ending inventory 13350 14850 15750 Inventory needed 92350 103850 114750 Less: Beginning inventory -4000 -13350 -14850 Required purchases (on account) 88350 90500 99900

B

	Ending inventory $15750

C

	Schedule of Cash Payments April May June Payment of current accounts payable 57427.50 58825 64935 Payment of previous accounts payable 15700 30922.50 31675 Total budgeted payments for inventory 73127.50 89747.50 96610

D

	Ending inventory 99900*35% = 34965