Question

Perez Company sells lamps and other lighting fixtures. The purchasing department manager prepared the following inventory purchases budget. Perez’s policy is to maintain an ending inventory balance equal to 20 percent of the following month’s cost of goods sold. April’s budgeted cost of goods sold is $78,000.

Required

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

   	Inventory Purchases Budget January February March Budgeted cost of goods sold $53,000 $57,000 $63,000 Plus: Desired ending inventory 11,400 Inventory needed 64,400 Less: Beginning inventory 10,600 Required purchases (on account) $53,800

2. Determine the amount of cost of goods sold the company will report on its first quarter pro forma income statement.

3. Determine the amount of ending inventory the company will report on its pro forma balance sheet at the end of the first quarter.

   	b. Cost of goods sold c. Ending inventory

Answer 1

	Answer
	Particulars	Jan	Feb	Mar	Q1
	Budgeted cost of goods sold (1)	$       53,000	$      57,000	$      63,000	$1,73,000
	Plus: Desired ending inventory (2)	$       11,400	$      12,600	$      15,600	$    15,600
	Inventory needed (3 = 1+2)	$       64,400	$      69,600	$      78,600	$1,88,600
	Less: Beginning inventory (4)	$      -10,600	$     -11,400	$     -12,600	$ -10,600
	Required Purchases (5 = 3+4)	$       53,800	$      58,200	$      66,000	$1,78,000
	a. Cost of Good Sold will be reported at the end of 1st Quarter = $ 1,73,000
	b. Ending inventory at the end of 1st Quarter = $ 15,600