Question

Estimate purchases in 1996. (Hint: Cost of goods equals purchases plus beginning inventory minus ending inventory.)

Use the percent of sales method to estimate funds needed in 1996 using the 1995 percentages.

CASE 1 2 TOPEKA ADHESIVES (1) FINANCIAL FORECASTING Karen and Elizabeth Whatley are twins. Their mother teaches Physics at a mid- western university and their father runs a successful engineering firm. Not sur- prisingly, they are quite gifted at math and science, and they've displayed these talents in numerous ways over the years. For example, they have won a num- ber of state science fairs, achieved near-perfect math SAT scores, and graduated Summa Cum Laude with Chemistry degrees from California Institute of Technology. After graduating college they took jobs with a major chemical com- pany, though their long-term goal was to open their own firm. The Whatleys completed a number of evening courses to increase their business skills. In their spare time the sisters loved to experiment and developed two relatively low- cost adhesives: a glue and a tape. They fulfilled a dream seven years ago when-with modest capital but con- tracts with a number of regional building supply stores, they formed Topeka Adhesives. The firm's products were top-notch and the company finished in the black its very first year, although the sisters were not entirely comfortable with the financial side of the business. A MARKETING DECISION About 12 months ago the partners concluded that Topeka's products were "un- derappreciated" and that "sales could-and should-be substantially higher." They fired an unproductive salesperson and, more importantly, made a key mar- keting decision. The twins decided to reduce Topeka's advertising in trade journals and use the money saved to attend more trade shows. They reasoned that trade shows are a relatively inexpensive way to display the company's products and are an opportunity to meet major corporate buyers face to face. That is precisely what happened. The firm's exhibits were impressive, and the Whatleys made important

Answer 1

The calculation of inventory purchases is:

= (Ending inventory - Beginning inventory) + Cost of goods sold

• Total valuation of beginning inventory. This information appears on the balance sheet of the immediately preceding accounting period.

• Total valuation of ending inventory. This information appears on the balance sheet of the accounting period for which purchases are being measured.

• Cost of goods sold. This information appears on the income statement of the accounting period for which purchases are being measured.

Please find the attached solution:

Solu Purchase = Coms + ending inventory beginning inventory using the percent of sales method to find the required things for year 1996. - ven- Predicted sales for 1996 + $1,932,100 Predicted spending on plant, land and equipment & $ 175,000 cons ligge) & cons (1955) Sates (1996) Sales (1985) & 1076400 x 1933100 1546500 .. 61345482.59 mi beginning inventory (1996) & ending inventory (1995) $1495,000 to Ending inventory & $175,000 Purchase - 1345482.59 + 17500 - 1495000 $25482.59 Purchase &