Exercise 14-4 Preparing an inventory purchases budget Naftel Company sells lamps

Question

Exercise 14-4 Preparing an inventory purchases budget Naftel Company sells lamps and other lighting fixtures. The purchasing department manager prepared the following inventory purchases budget. Naftel's policy is to maintain an ending inventory balance equal to 10 percent of the following month's cost of goods sold. April's budgeted cost of goods sold is $75,000 January S50,000 5,400 55,400 5,000 S50,400 February March Budgeted cost of goods sold Plus: Desired ending inventory Inventory needed Less: Beginning inventory Required purchases (on account) S54,000 S60,000 Required a. Complete the inventory purchases budget by filling in the missing amounts b. Determine the amount of cost of goods sold the company will report on its first quarter pro forma income statement. Determine the amount of ending inventory the company will report on its pro forma balance sheet at the end of the first quarter c.

Explanation / Answer

a January February March Budgeted cost of goods sold 50000 54000 60000 Plus: Desired ending inventory 5400 6000 7500 Inventory needed 55400 60000 67500 Less: Beginning inventory 5000 5400 6000 Required purchases 50400 54600 61500 b Budgeted cost of goods sold =50000+54000+60000 = 164000 c Ending inventory = $7500

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