Spencer Company sells lamps and other lighting fixtures. The purchasing departme
ID: 2475259 • Letter: S
Question
Spencer Company sells lamps and other lighting fixtures. The purchasing department manager prepared the following inventory purchases budget. Spencer’s policy is to maintain an ending inventory balance equal to 15 percent of the following month’s cost of goods sold. April’s budgeted cost of goods sold is $83,000.
a. Complete the inventory purchases budget by filling in the missing amounts.
January Febuary March
Budgeted cost of goods sold $60,000 $64,000 $70,000
Plus: Desired ending inventory $9,600 ? ?
Inventory Needed 69,600 ? ?
Less: Beginning Inventory 9,000 ? ?
Required purchases (on account) $60,600 ? ?
b. Determine the amount of cost of goods sold the company will report on its first quarter pro forma income statement.
c. Determine the amount of ending inventory the company will report on its pro forma balance sheet at the end of the first quarter.
Explanation / Answer
Particulars
Jan
Feb
Mar
April
Cost of Goods Sold
60,000
64,000
70,000
83,000
Plus: Desired ending inventory
9,600
10,500
12,450
-
Inventory Needed
69,600
74,500
82,450
83,000
Less: Beginning Inventory
(9,000)
(9,600)
(10,500)
(12,450)
Required purchases (on account)
60,600
64,900
71,950
70,550
Cost of Goods Sold for First Quarter= $60,000+$64,000+$70,000=$194,000
Ending inventory at the end of the first quarter=$194,000
Particulars
Jan
Feb
Mar
April
Cost of Goods Sold
60,000
64,000
70,000
83,000
Plus: Desired ending inventory
9,600
10,500
12,450
-
Inventory Needed
69,600
74,500
82,450
83,000
Less: Beginning Inventory
(9,000)
(9,600)
(10,500)
(12,450)
Required purchases (on account)
60,600
64,900
71,950
70,550
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