Widden Company, which sells electric razors, had $400,000 of cost of goods sold

ID: 2454152 • Letter: W

Question

Widden Company, which sells electric razors, had $400,000 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 $30,000, and the desired ending inventory balance for July is $32,000. Widden pays cash to settle 70 percent of its purchases on account during the month of purchase and pays the remaining 30 percent in the month following the purchase. The accounts payable balance as of June 30 was $36,000.

Determine the amount of cash payments budgeted for inventory purchases in July.

Required

Explanation / Answer

Calculation of amount of purchases budgeted for July:

Cost of goods sold during the month of June

$ 400,000

Cost of goods sold during the month of July = 400000*105%

$ 420,000

Less: Beginning inventory Balance

$ (30,000)

Add: Ending inventory Balance

$ 32,000

Purchases budgeted for July =

$ 422,000

Calculation of cash payments budgeted for inventory purchases in July:

Payment for accounts payable balance

$ 36,000

Add: Payment of July Purchases = 422000*70%

$ 295,400

Cash payments budgeted for inventory purchases in July

$ 331,400