Question

Executive officers of Jordan 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	$	377,000		$	316,000		$	275,000		$	482,000
Marketing consultant		511,000			456,000			402,000			658,000

Jordan’s past experience indicates that cost of goods sold is about 55 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 $32,000. Next year’s ending inventory is budgeted to be $33,000.

Required

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

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

Required A

Required B

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 $377,000 $316,000 $275,000 $482,000 Cost of goods sold $203,500 $142,200 $151,250 $265,100 Plus: Desired ending inventory Total inventory needed 203,500 142,200 151,250 265,100 Less: Beginning inventory Required purchases $203,500 $142,200 $151,250 $265,100

Required B

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 $456,000 $402,000 $658,000 Total inventory needed 0 0 0 0 Required purchases $0 $0 $0 $0

Answer 1

Required A

Inventory purchases budget using the sales manager’s estimate.

	First Quarter	Second Quarter	Third Quarter	Fourth Quarter
Sales	$ 377,000	$ 316,000	$ 275,000	$ 482,000
Cost of goods sold (55% of sales above)	$ 207,350	$ 173,800	$ 151,250	$ 265,100
	[377000* 55%]	[316000* 55%]	[275000* 55%]	[482000* 55%]
Plus: Desired ending inventory	$ 17,380	$ 15,125	$ 26,510	$ 33,000
	[316000* 55% * 10%]	[275000* 55% * 10%]	[482000* 55% * 10%]
Total inventory needed	$ 224,730	$ 188,925	$ 177,760	$ 298,100
Less: Beginning inventory	$ 32,000	$ 17,380	$ 15,125	$ 26,510
Required purchases	$ 192,730	$ 171,545	$ 162,635	$ 271,590

Requirement B

Estimates based on marketing consultant's estimates

	First Quarter	Second Quarter	Third Quarter	Fourth Quarter
Sales	$ 511,000	$ 456,000	$ 402,000	$ 658,000
Cost of goods sold (55% of sales above)	$ 281,050	$ 250,800	$ 221,100	$ 361,900
	[511000* 55%]	[456000* 55%]	[402000* 55%]	[658000* 55%]
Plus: Desired ending inventory	$ 25,080	$ 22,110	$ 36,190	$ 33,000
	[456000* 55% * 10%]	[402000* 55% * 10%]	[658000* 55% * 10%]
Total inventory needed	$ 306,130	$ 272,910	$ 257,290	$ 394,900
Less: Beginning inventory	$ 32,000	$ 25,080	$ 22,110	$ 36,190
Required purchases	$ 274,130	$ 247,830	$ 235,180	$ 358,710

Note:

Cost of goods sold: cost of goods sold amount is 55% of the sales for that quarter

Desired ending inventory: for the first 3 quarters it is equal to 10 % of cost of goods sold of next quarter and cost of goods sold is again 55% of sales for the respective quarter. for the 4th quarter desired inventory is given.