Question

Hardy Company’s cost of goods sold is consistently 70% of sales. The company plans ending merchandise inventory for each month equal to 30% of the next month’s budgeted cost of goods sold. All merchandise is purchased on credit, and 40% of the purchases made during a month is paid for in that month. Another 45% is paid for during the first month after purchase, and the remaining 15% is paid for during the second month after purchase. Expected sales are: August (actual), $365,000; September (actual), $350,000; October (estimated), $260,000; and November (estimated), $340,000.

Use this information to determine October’s expected cash payments for purchases.

Calculate Monthly Purchases
	August	September	October	November
Budget Ending inventory
Cost of goods sold (estimated	255,500	245,000	182,000	238,000
Required available inventory
Budgeted beginning inventory
Required purchases	$	$	$	$

Calculate Payment Made for Inventory Purchase paid in
Purchases	August	September	October	After October
$	$	$	$	$

Determine October's Expected Cash Payments for Purchases
October's expected cash payments for purchases	$

Answer 1

Calculate purchase

	August	September	October	November
Budgeted ending inventory	73500	54600	71400
Cost of goods sold	255500	245000	182000	238000
Required available inventory	329000	299600	253400
Budgeted beginning inventory	-76650	-73500	-54600
Required purchase	252350	226100	198800

Calculate payment made

	August	September	October	After october
August	100940	113557.50	37852.50
September		90440	101745	33915
October			79520	119280
Total	100940	203997.50	219117.50	153195

October's expected cash payment for purchase = $219117.50