Preparing an operating budget—inventory, purchases, and cost of goods sold budget

Slate, Inc. sells tire rims. Its sales budget for the nine months ended September 30, 2018, follows:

Quarter Ended Nine-MonthTotal

March 31 June 30 September 30 Cash sales, 20% \( 28,000 \) 38,000 \( 33,000 \) 99,000

Credit sales, 80% 112,000 152,000 132,000 396,000 Total sales \( 140,000 \) 190,000 \( 165,000 \) 495,000

In the past, cost of goods sold has been 40% of total sales. The director of marketing and the financial vice president agree that each quarter’s ending inventory should not be below \(5,000 plus 10% of cost of goods sold for the following quarter. The marketing director expects sales of \)240,000 during the fourth quarter. The January 1 inventory was $38,000. Prepare an inventory, purchases, and cost of goods sold budget for each of the first three quarters of the year. Compute cost of goods sold for the entire nine-month period.

Step by step solution

01

Preparation of inventory budget

	March 31	June 30	September 30	Total
Budgeted sales	$140,000	$190,000	$165,000	$495,000
Plus: Desired ending inventory	$12,600	$11,600	$14,600	$38,800
Total required inventory	$152,600	$201,600	$179,600	$533,800
Less: Beginning inventory	($38,000)	($12,600)	($11,600)	$62,200
Budgeted inventory	$114,600	$189,000	$168,000	$471,600

02

Preparation of cost of goods sold budget

	March 31	June 30	September 30	Total
Budgeted sales	$140,000	$190,000	$165,000	$495,000
Budgeted cost of goods sold	$56,000	$76,000	$66,000	$198,000

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