Preparing a Merchandise purchase budget.

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Weller Industrial Gas corp. supplies acetylene and other compressed gases to industry. Data regarding the store's operations follow:

Sales are budgeted at $330,000 for Nov. and $300,000 for Dec. and $320,000 for January. The company puchases 80% of its merchandise in the month prior to the month of sale and 20% in the month of sale. Payment for merchandise is made in the month following the purchase. The cost of goods sold is 60% of sales.

Statement of Financial position
Oct. 31

Cash: 22,000
A/R: 83,000
Inventory: 158,400
Property and equipment: 1,004,000
Total asset: 1,267,400

How can I prepare merchandise purchases budget for Nov. and Dec.? Usually the question will show you the desirable ending balance and beginning balance, but this one doesn't. I know the budgeted COGS for Nov. is 198,000 and 180,000 for dec. and What Do I do from here?
Please help~!

Well, you've already got what I'd consider to be the hard part done -- you managed to take the Oct 31 inventory and come up with Nov COGS. Lots of people wouldn't get that. Which leads me to believe you can do this, and I think you're letting the lack of an inventory adjustment throw you off.

So you now know that COGS is 60% of sales, so you can get COGS for January also. I know you don't have to do a budget for January, but since they're purchasing 80% in the month before, that will be purchased in December, so you do need that number. So I'd do that first.

You'll actually be figuring beginning balances yourself and you don't really even need to worry that that's what it is. In a way, that's also their desired ending balance. The 158,400 from Oct is the beginning balance of November and was also the desired ending balance for Oct, because that's how much they want to buy in advance. So it's kind of built into the problem. This isn't like your other purchases budgets where you've had to make an inventory adjustment. (Actually, I don't think I've seen a problem like this before.)

So get the January COGS. Then remember that 80% is purchased in the month before. So you're taking your COGS and splitting them 80/20% -- with 80% being purchased the prior month and 20% the current month. Just make yourself a little chart or whatever works. Take each COGS, do the 80/20 split and place the numbers on the chart where they are to be purchased.

That's really all you have to do and you're done. Feel free to post whatever you get and someone can check your answers.