Question

In: Accounting

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

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

Solutions

Expert Solution

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.

ekkarill92 answered 1 year ago
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