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Executive officers of Stuart Company are wrestling with their budget for the next year. The following...

Executive officers of Stuart Company are wrestling with their budget for the next year. The following are two different sales estimates provided by two difference sources.

Source of Estimate First Quarter Second Quarter Third Quarter Fourth Quarter
Sales manager $ 381,000 $ 306,000 $ 287,000 $ 486,000
Marketing consultant 511,000 457,000 417,000 648,000

Stuart’s past experience indicates that cost of goods sold is about 65 percent of sales revenue. The company tries to maintain 10 percent of the next quarter’s expected cost of goods sold as the current quarter’s ending inventory. This year’s ending inventory is $24,000. Next year’s ending inventory is budgeted to be $25,000.

Required

  1. Prepare an inventory purchases budget using the sales manager’s estimate.

  2. Prepare an inventory purchases budget using the marketing consultant’s estimate.

Prepare an inventory purchases budget using the sales manager’s estimate. (Round your final answers to nearest whole dollar amount.)
First Quarter Second Quarter Third Quarter Fourth Quarter
Sales $381,000 $306,000 $287,000 $486,000
Total inventory needed 0 0 0 0
Required purchases $0 $0 $0 $0

Prepare an inventory purchases budget using the marketing consultant’s estimate. (Round your final answers to nearest whole dollar amount.)
First Quarter Second Quarter Third Quarter Fourth Quarter
Sales $511,000 $457,000 $417,000 $648,000
Total inventory needed 0 0 0 0
Required purchases $0 $0 $0 $0

Solutions

Expert Solution

Purchase Budget (Sales Manager Estimate)

1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Sales $        381,000 $       306,000 $         287,000 $         486,000
Cost of Goods Sold (60%) $        228,600 $       183,600 $         172,200 $         291,600
Add : Desired Inventory $          18,360 $          17,220 $            29,160 $           25,000
Total inventory needed $        246,960 $       200,820 $         201,360 $         316,600
Less Beginning Inventory $          24,000 $          18,360 $            17,220 $           29,160
Required Purchases $        222,960 $       182,460 $         184,140 $         287,440


Desired Ending Inventory = 10% of next quarter's cost of goods sold i.e.
1st Quarter = $183600 x 10%, 2nd Quarter = $172200 x 10% and 3rd Quarter = $291600 x 10%

Purchase Budget (Marketing Consultant Estimate)

1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Sales $        511,000 $       457,000 $         417,000 $         648,000
Cost of Goods Sold (60%) $        306,600 $       274,200 $         250,200 $         388,800
Add : Desired Inventory $          27,420 $          25,020 $            38,880 $           25,000
Total inventory needed $        334,020 $       299,220 $         289,080 $         413,800
Less Beginning Inventory $          24,000 $          27,420 $            25,020 $           38,880
Required Purchases $        310,020 $       271,800 $         264,060 $         374,920

Desired Ending Inventory = 10% of next quarter's cost of goods sold i.e.
1st Quarter = $274200 x 10%, 2nd Quarter = $250200 x 10% and 3rd Quarter = $388800 x 10%

ekkarill92 answered 2 years ago
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