Question

Walton Company sells lamps and other lighting fixtures. The purchasing department manager prepared the following inventory purchases budget. Walton’s policy is to maintain an ending inventory balance equal to 15 percent of the following month’s cost of goods sold. April’s budgeted cost of goods sold is $83,000.

Required

1. Complete the inventory purchases budget by filling in the missing amounts.

2. Determine the amount of cost of goods sold the company will report on its first quarter pro forma income statement.

3. Determine the amount of ending inventory the company will report on its pro forma balance sheet at the end of the first quarter.

Complete the inventory purchases budget by filling in the missing amounts.

	Inventory Purchases Budget January February March Budgeted cost of goods sold $53,000 $57,000 $63,000 Plus: Desired ending inventory 8,550 Inventory needed 61,550 Less: Beginning inventory 7,950 Required purchases (on account) $53,600

Determine the amount of cost of goods sold the company will report on its first quarter pro forma income statement. Determine the amount of ending inventory the company will report on its pro forma balance sheet at the end of the first quarter.

	b. Cost of goods sold c. Ending inventory

Answer 1

Inventory purchase budget :

Inventory Purchases Budget January February March Budgeted cost of goods sold $53,000 $57,000 $63,000 Plus: Desired ending inventory 8,550 9450 12450 Inventory needed 61,550 66450 75450 Less: Beginning inventory 7,950 8550 9450 Required purchases (on account) $53,600 $57900 $66000

Note 1: calculation of ending inventory for February month -

Ending inventory = cost of goods sold of next month ×15%

= $63000×15%

= $9450

Note 2: calculation of ending inventory of March month -

= $83000 × 15%

= $12450

Note 3: ending inventory of one month becomes the beginning inventory of next month. Therefore, ending inventory of February and March will be $8550 and $9450 respectively.

Amount of cost of goods sold the company will report on its first quarter pro forma income statement = sum of cost of goods sold of Jan, Feb and march.

= $53000+$57000+$63000

= $173000

Amount of ending inventory the company will report on its pro forma balance sheet at the end of the first quarter = ending inventory of March month.

= $12450 (as per note 2).