Question

Rooney, Inc. sells fireworks. The company’s marketing director developed the following cost of goods sold budget for April, May, June, and July.

	April	May	June	July
Budgeted cost of goods sold	$64,000	$74,000	$84,000	$90,000

Rooney had a beginning inventory balance of $3,100 on April 1 and a beginning balance in accounts payable of $14,700. The company desires to maintain an ending inventory balance equal to 15 percent of the next period’s cost of goods sold. Rooney makes all purchases on account. The company pays 65 percent of accounts payable in the month of purchase and the remaining 35 percent in the month following purchase.  

Required

1. Prepare an inventory purchases budget for April, May, and June.

2. Determine the amount of ending inventory Rooney will report on the end-of-quarter pro forma balance sheet.

3. Prepare a schedule of cash payments for inventory for April, May, and June.

4. Determine the balance in accounts payable Rooney will report on the end-of-quarter pro forma balance sheet.

Answer 1

a.

Production Budget
	April	May	June	Quarter
Cost of Goods Sold	$          64,000	$           74,000	$       84,000	$ 2,22,000
Add : Desired Ending Inventory	$          11,100	$           12,600	$       13,500	$     13,500
Total Needs	$          75,100	$           86,600	$       97,500	$ 2,35,500
Less : Beginning Inventory	$            3,100	$           11,100	$       12,600	$        3,100
Purchases	$          72,000	$          75,500	$      84,900	$ 2,32,400

b. Amount of ending inventory = $13500

c.

Cash Payments Schedule
	April	May	June	Quarter
Accounts Payable, Balance	$          14,700			$     14,700
April Purchases	$          46,800	$           25,200		$     72,000
May Purchases		$           49,075	$       26,425	$     75,500
June Purchases			$       55,185	$     55,185
Total	$          61,500	$          74,275	$      81,610	$ 2,17,385

d. Balance in accounts payable = $84900 x 35% = $29715