Question

6. The Seten Corporation has a desired ending inventory of 30% of the next months estimated sales. In turn, their cost of goods sold is 60% and their forecasted sales for the months of March, April, May, June and July are as follows:

$750,000

$880,000

$700,000

$800,000

$900,000

Purchases for the Months of February and March were $500,000 and $360,000 and their purchases are paid as follows: 10% during the month of the purchase, 80% in the next month and the final 10% in the next month

Prepare budget schedules for the months of April, May, and June for purchases and also for disbursements for purchases

Answer 1

1)Purchase Budget(April,May and June)

In preparing purchase budget give Cost of sales to be 60% of sales of that month.

Also Mentioned There will be opening stock amount to 30%of Sales(not of Cos) of the month(ie,Closing stock of last month)

$'	April	May	June
Cost Of Sales (60%*Sales) for eg(880*60%,..	528,000	420,000	480,000
Opening Stock(880*30%,700*30%,800*30%)	(264,000)	(210,000)	(240,000)
Purchase For this Quarter(Cos-Opening)	264,000	210,000	240,000
Closing Stock (for next quarter 30*next month sales)	210,000	240,000	(900(july)*0.30)=270,000
Purchase Budget(Fr this quarter+Closing)	474,000	450,000	510,000

On preparing Payment budget we need to make a setup to absorb 10% of purchase in same month previous year's 80% and 2months before's 10%. That will be easy to work-out As one month's whole payment can be btained

Payment budget (April,May and June)

Payment	Feb	Mar	April	May	June
This Month's(purchase*10%)			(474*10%)=47,400	(450*10%)=45,000	(510*10%)=51,000
2nd Month-*80% previous's			288,000 (w1)	(474(april)*80%)=379,200	(450(may)*80%)=360,000
3rd Month			50,000(w1)	36,000(w1)	(474(april)*10%)=47,400
Total Payment			385,400	784,200	458,400

W1)2nd and Third Month Working

Feb

Purchase-500,000 3rd)Payment in April- 500,000*10%=50,000

March

Purchase-360,000 2nd)payment in April-360,000*80%=288,0003rd)PAyment in May=360,000*10%=36,000