Question

Jordan Company sells lamps and other lighting fixtures. The purchasing department manager prepared the following inventory purchases budget. Jordan’s policy is to maintain an ending inventory balance equal to 15 percent of the following month’s cost of goods sold. April’s budgeted cost of goods sold is $76,000. Complete the inventory purchases budget by filling in the missing amounts.

Complete the inventory purchases budget by filling in the missing amounts.

	Inventory Purchases Budget January February March Budgeted cost of goods sold $60,000 $64,000 $70,000 Plus: Desired ending inventory 9,600 Inventory needed 69,600 Less: Beginning inventory 9,000 Required purchases (on account) $60,600

b. Cost of goods sold

c. Ending inventory

Answer 1

Solution: Inventory Purchases Budget

	January	February	March
Budgeted Cost of goods sold	60,000.00	64,000.00	70,000.00
(+) Desired ending inventory	9,600.00	10,500.00	11,400.00
Inventory needed	69,600.00	74,500.00	81,400.00
(-) Beginning inventory	9,000.00	9,600.00	10,500.00
Required purchases (on account)	60,600.00	64,900.00	70,900.00

Calculation of Desired ending Inventory for February = 15% of Budgeted Cost of goods sold for March
= 0.15 * 70000 = $10,500

Calculation of Desired ending Inventory for March = 15% of Budgeted Cost of goods sold for April
= 0.15 * 76000 = $11,400

Inventory needed = Budgeted Cost of goods sold + Desired ending inventory

For February = 64,000 +10,500 = $74,500
For March = 70,000 + 11,400 = $81,400

Beginning Inventory for February will be the Desired ending inventory for January = $9,600

Beginning Inventory for March will be the Desired ending inventory for February = $10,500

Required purchases (on account) = Inventory needed - Beginning inventory
For February = 74,500 - 9,600 = $64,900
For March = 81,400 - 10,500 = $70,900