Question
In: Accounting
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
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Prepare an inventory purchases budget using the sales manager’s estimate.
-
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.)
|
Prepare an inventory purchases budget using the marketing consultant’s estimate. (Round your final answers to nearest whole dollar amount.)
|
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%
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