Question

BLO PROBLEM 4 (10 pints) The sales budget of Hickory Company for the third quarter of 2018 is as follows: July $96,000 August $72,000 September $108,000 Sales Sales are 20% cash , 80 % credit. Cost of goods sold is 70% of total sales. Desired ending inventory for each month is equal to 25% of cost of goods sold for the following mo Collections on credit sales are as follows: 50% in the month of sale 30% in the month following sale 15% in the second month following sale 5% uncollectible July 1 inventory is $16,000. Expected sales for October are $84,000. Payments for inventory are 70% in the month following purchase and 30% two months followin. Prepare the purchas es budget for July, August, and September July are $150,000: po all accounts recei oo ding inventory is ntory purchases are

Answer 1

Purchases Budget

July Sales COGS (70%) Closing Inventory Total Opening Inventory Total Purchases August September 96000 72000 108000 67200 50400) 75600 12600 18900 14700 79800 69300 90300 16000 12600) 18900 63800 56700 71400

Ending Inventory: 25% COGS of next month

• July=> (72000*70%)*25%= 12600
• Aug=> 108000*70%*25% = 18900
• Sept=> 84000*70%*25%=14700

Total Purchases = COGS + Closing inventory - Opening inventory

Please comment in case of any query regarding the solution.