Tobert Company, which sells electric razors, had $270,000 of cost of goods sold

Question

Tobert Company, which sells electric razors, had $270,000 of cost of goods sold during the month of June. The company projects a 5 percent increase in cost of goods sold during July. The inventory balance as of June 30 is $33,000, and the desired ending inventory balance for July is $23,000. Tobert pays cash to settle 80 percent of its purchases on account during the month of purchase and pays the remaining 20 percent in the month following the purchase. The accounts payable balance as of June 30 was $29,000.

(a) Determine the amount of purchases budgeted for July.
(b)Determine the amount of cash payments budgeted for inventory purchases in July

Explanation / Answer

As Acct Payable at end of JUne = 29000 = 20% of Purcahse of June SO Purchse for June = 29000/20% = $145,000 We know OP Inv Bal = COGS+Ending Inv - Purchases So Op Inv for June = 270,000+33000-145000 = 158,000 ...(A) (a) Purcahse for July = COGS + Ending Inv- Op Inv We also know that Ending Inv for June = OPening Inv for Jul So Purchase for Jul = 283500+23000-33000 = $273,500 ....Ans (a) (b) Cash ayment in Jul = 20% of Balance payable of June + 80% of July = 29000 + 80%*273,500 = $247,800 .........Ans (b)

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