View Full Version : Prepare a Merchandise Purchases Budget for November and December
isbravo
Nov 14, 2010, 11:11 AM
Sales are budgeted at $390,000 for Nov. $370,000 for Dec. and $380,000 for Jan.
The cost of goods sold is 60% of sales
The company purchases 70% of its merchandise in the month prior to the month of sale and 30% in the month of sale. Payment for merchandise is made in the month following the purchase
Statement of Financial Position
10/31
Cash: $25,000
Accts rec: 71,000
Inventory: 163,800
Property, plant, and equip: 1,088,000
Total assets: $1,347,800
I'm not sure where to begin. I know that my ending inventory for oct will be my beginning inventory for Nov.
Just Looking
Nov 14, 2010, 12:24 PM
If you look at just November to start, you know your sales number $390,000. Costs of goods sold is 60% of that number, so you can compute that. Of that number, 70% should have been purchased in the previous month (i.e. will be in inventory), as stated in your question. You have to buy the other 30% in November. You also want to buy 70% of the purchases for the following month of December. If you'd like to compute all that, I'll check it for you.
isbravo
Nov 14, 2010, 12:28 PM
So my COGS for Nov is $234,000 Dec is $222,000 and Jan $228,000
Would that be my Budget sales? So would my 30% of the COGS of Nov be my desired ending inventory in my Merchandise Purchase Budget?
Just Looking
Nov 14, 2010, 12:44 PM
Not quite. The COGS of $234,00 is correct. The next step says 70% of merchandise is purchased in the prior month. That means 70% comes out of inventory. For November you have to purchase the other 30%, but you also have to purchase 70% of the merchandise needed for December. Try again and I'll check it.
isbravo
Nov 14, 2010, 01:17 PM
So my desired ending inventory would be 30% of the COGS of $234,000 which is $70,200 because the 70% of COGS $234,000 is $163,800 is my beg merchandise inventory
Just Looking
Nov 14, 2010, 01:22 PM
Well, technically, your COGS for November is $234,000. Of that, 70% or $163,800 was bought in October and is sitting in inventory. You have to purchase the other 30%, or $70,200. In November the ending inventory from October is charged to COGS and credited to inventory. You then purchase the $70,200 which is sold in November and therefore charged to COGS. In November you also purchase 70% of what you need for December, or 70% of $222,000 = $155,400. Your ending inventory for November will be the $155,400. Your purchases budget for November is the $70,200 + $155,400.
star123456
Nov 7, 2011, 08:04 PM
I'm dealing with the same problem.. so I followed your answer.. and I get my merchandise purchase budget for dec to be:159600+66600.. am I right?there is no any ending inventory.. m still confuse about it..
Just Looking
Nov 8, 2011, 03:19 PM
You are correct in your purchases. Purchases is a different question than ending inventory, but hopefully this will address your confusion.
Your COGS in November is $234,000, or 60% of $390,000. That can also be calculated as the $163,800 ending inventory from October that will be used in November plus the $70,200 that will be purchased in November.
If you put this in an Excel spreadsheet with columns for your different months it will make more sense.
KG1029
Nov 16, 2011, 03:10 PM
Now for the same question, for the merchandise purchases budget you need to find the disbursements for merchandise? How do I go about getting that?
Just Looking
Nov 16, 2011, 04:36 PM
Payment for merchandise is made in the month following the purchase. You know what was purchased in November. Those purchases are paid in December. If you want to post your answer now, I'll verify it. Thanks.
KG1029
Nov 16, 2011, 10:50 PM
For total purchases for November I got 225,600 and for December, 226,200. Just stuck on the disbursements for merchandise
Just Looking
Nov 16, 2011, 11:18 PM
Your purchases are paid in the month following purchase. Thus, the November purchases of $225,600 become December disbursements of $225,600. December purchases of $226,200 are disbursements in January.
KG1029
Nov 16, 2011, 11:38 PM
Thank you, the next part starts with cash receipts, how do I find those?
Just Looking
Nov 16, 2011, 11:43 PM
The question in the original post doesn't give any info about collections. Does your problem say anything more than what is shown? Normally you'd see something like percentages that are received over the following months, and you use that info applied to your sales to figure out the receipts.
KG1029
Nov 16, 2011, 11:47 PM
Collections are expected to be 90% in the month of sale, 5% in the month following the sale, and 5% uncollectible
Just Looking
Nov 16, 2011, 11:50 PM
Okay, so why don't you apply those percentages to the sales and show me what you get. I'll let you know if you are doing it right. If you use Excel it will be easier.
KG1029
Nov 17, 2011, 12:07 AM
I got 422,000 for November but I'm not coming up with the correct answer for December
Just Looking
Nov 17, 2011, 12:09 AM
Show me what you did for Dec and I'll help you where you don't understand.
KG1029
Nov 17, 2011, 12:11 AM
I did 370,000 x 90% + the 71,000 in accounts receivable
Just Looking
Nov 17, 2011, 12:15 AM
The question states that collections are expected to be 90% in the month of sale, 5% in the month following the sale, and 5% uncollectible.
You are correct that 90% of $370,000 will be collected. In addition, 5% of November's sales will be collected in December. Try again and let me know what you get.
KG1029
Nov 17, 2011, 12:22 AM
I came up with 352,500
Just Looking
Nov 17, 2011, 12:24 AM
Yes, that's right. Do you want to do the same for January's collections and I can check it, or do you think you understand now?
KG1029
Nov 17, 2011, 12:26 AM
I think I got everything down, thank you very much!
Just Looking
Nov 17, 2011, 12:28 AM
You're welcome. :)
KG1029
Nov 17, 2011, 02:27 AM
One more problem, it is the last part of this question which is the budgeted balance sheet for Dec 31. I got accounts receivable and inventory down, but I need help with cash, property/plant/equipment, accounts payable, common stock, and retained earnings. I'm lost trying to figure out how to get these.
Just Looking
Nov 17, 2011, 07:30 AM
I don't know if I have the full question as the original poster had a specific problem. I would suggest you use T-accounts to figure out your balances for the BS.