[isbravo]

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]

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]

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]

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]

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]

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]

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]

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]

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]

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]

For total purchases for November I got 225,600 and for December, 226,200. Just stuck on the disbursements for merchandise

[Just Looking]

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]

Thank you, the next part starts with cash receipts, how do I find those?

[Just Looking]

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]

Collections are expected to be 90% in the month of sale, 5% in the month following the sale, and 5% uncollectible

[Just Looking]

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]

I got 422,000 for November but I'm not coming up with the correct answer for December

[Just Looking]

Show me what you did for Dec and I'll help you where you don't understand.

[KG1029]

I did 370,000 x 90% + the 71,000 in accounts receivable

[Just Looking]

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.