Chapter 22: 14SE (page 1231)

Question:Brooks Company expects to sell 8,500 units for $175 each for a total of $1,487,500 in January and 2,500 units for $200 each for a total of $500,000 in February. The company expects cost of goods sold to average 70% of sales revenue, and the company expects to sell 4,700 units in March for $280 each. Brooks’s target ending inventory is $20,000 plus 50% of the next month’s cost of goods sold. Prepare Brooks’s inventory, purchases, and cost of goods sold budget for January and February

Short Answer

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Answer

Particular	January	February
Purchase	695,625	635,600
Cost of goods sold	1,041,250	350,000

Step by step solution

Preparation of operating budget

Brooks Company
Operating Budget
Particulars	January ($)	February ($)	Total ($)
Sale	$1,487,500	$500,000	$1,987,500
Cost of goods sold (70% of sales)	1,041,250	350,000	1,391,250
Add: Desired ending Inventory	195,000	480,600	675,600
Total Inventory	1,236,250	830,600	2,066,850
Less: Beginning Inventory	540,625	195,000	735,625
Budgeted Purchases	695,625	635,600	1,331,225

Computation of desired ending inventory and beginning inventory for January

$DesiredendingInventoryforJanuary = Targetedending + 50 % ofFebruaryCOGS = 20, 000 + 350, 000 \times 50 % = $ 195, 000 C O G S o f M a r c h = (U n i t S o l d \times S e l l i n g P r i c e P e r U n i t s) \times 70 % = (4, 700 \times $ 280) \times 70 % = $ 921, 200 DesiredendingInventoryforFebruary = Targetedending + 50 % ofMarchCOGS = 20, 000 + 921, 20 BeginningInventory = TargetedendingInventory + 50 % ofJanuaryCOGS = 20, 000 + 1, 041, 250 \times 50 % = $ 540, 625$