Humboldt, Inc. sells fireworks. The company’s marketing director developed the f
ID: 2561415 • Letter: H
Question
Humboldt, Inc. sells fireworks. The company’s marketing director developed the following cost of goods sold budget for April, May, June, and July. April May June July Budgeted cost of goods sold $ 37,500 $ 34,000 $ 30,000 $ 45,000 Humboldt had a beginning inventory balance of $1,800 on April 1 and a beginning balance in accounts payable of $7,400. The company desires to maintain an ending inventory balance equal to 10 percent of the next period’s cost of goods sold. Humboldt makes all purchases on account. The company pays 60 percent of accounts payable in the month of purchase and the remaining 40 percent in the month following purchase. Required Prepare an inventory purchases budget for April, May, and June. Determine the amount of ending inventory Humboldt will report on the end-of-quarter pro forma balance sheet. Prepare a schedule of cash payments for inventory for April, May, and June. Determine the balance in accounts payable Humboldt will report on the end-of-quarter pro forma balance sheet.
Explanation / Answer
Solutioin:
Part 1 --- Inventory Purchase Budget
Inventory Purchase Budget
April
May
June
Quarter End
Budgeted cost of goods sold
37500
34000
30000
Plus: Ending balance of inventory (10% of Next month's COGS)
3400
3000
4500
Total needs
40900
37000
34500
Less: Beginning balance of inventory (Ending balance of last month)
1800
3400
3000
Required inventory purchases
39100
33600
31500
104200
Working:
Inventory Purchase Budget
April
May
June
July
Budgeted cost of goods sold
37500
34000
30000
45000
Plus: Ending balance of inventory (10% of Next month's COGS)
3400
3000
4500
Total needs
40900
37000
34500
Less: Beginning balance of inventory (Ending balance of last month)
1800
3400
3000
Required inventory purchases
39100
33600
31500
Part 2 – the amount of ending inventory Humboldt will report on the end-of-quarter pro forma balance sheet = Ending Inventory of June month = $4,500
Part 3 --- schedule of cash payments for inventory for April, May, and June
schedule of cash payments for inventory for April, May, and June
April
May
June
Quarter End
March Accounts Payable
7400
April Purchases
23460
(39100*60%)
15640
(39100*40%)
May Purchases
20160
(33600*60%)
13440
(33600*40%)
June Purchases
18900
(31500*60%)
Total cash payments for Inventory purchases
30860
35800
32340
99000
Part 4 --- the balance in accounts payable Humboldt will report on the end-of-quarter pro forma balance sheet = 40% of June Purchases Inventory = 31,500*40% = $12,600
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Inventory Purchase Budget
April
May
June
Quarter End
Budgeted cost of goods sold
37500
34000
30000
Plus: Ending balance of inventory (10% of Next month's COGS)
3400
3000
4500
Total needs
40900
37000
34500
Less: Beginning balance of inventory (Ending balance of last month)
1800
3400
3000
Required inventory purchases
39100
33600
31500
104200
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