d . Cost of goods sold will be 60% of sales.
Company policy is to budget an ending inventory balance equal
to 25% of the next month’s projected cost of goods sold.
Assume Chang expects
cost of goods sold to
Prepare an inventory purchases budget.
e. All inventory purchases are on account.
The company pays 70% of accounts payable in the month of
It pays the remaining 30% in the following month.
Prepare a schedule of expected cash payments
for inventory purchases.
f. Use the information developed in
requirements d and e
to determine the amount of cost of goods sold on the
d. e. f.
Inventory Purchases Budget, Schedule of Cash Payments for Inventory, Pro Forma Data
Cost of Goods Sold Percentage
60% of Sales
Desired Ending Inventory
Inventory Purchases Budget
Pro Forma Stmt. Data
Budgeted Cost of Goods Sold
IS - 794,400 (a
Plus Desired Ending Inventory
BS - 78,500 (b)
Total Inventory Needed
Less Beginning Inventory
Required Inventory Purchases
BS - 88,890 (c
SCHEDULE OF CASH PAYMENTS FOR INVENTORY PURCHASES
70% of Current Purchases
30% of Prior Month's Purchases
Total Budgeted Inv.
To Cash Budget
(a) Cost of goods sold on first quarter pro forma income statement =sum of monthly COGS = 794,400
(b) Inventory balance on March 31 pro forma balance sheet = 78,500
(c) Accounts payable balance on March 31 pro forma balance sheet = $296,300 x 30% = 88,890
$400,000 x 60%
25% Next Month COGS
$264,000 x 25%
To be paid April