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New Member
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May 8, 2011, 06:16 PM
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Merchandise Purchases Budget--- Accounting
I'm trying to prepare a merchandise purchases budget with this information:
Weltin Industrial Gas Corporation supplies acetylene and other compressed gases to industry.
Sales are budgeted at $390,000 for November, $370,000 for December and $380,000 for January.
The company purchases 70% of it's merchandise in the month prior to the sale, and 30% in the month of the sale. Payment for merchandise is made the month following the purchase.
COGS is 60% of sales
Other monthly expenses paid in cash= $21,000
Monthly depreciation= $18,000
Assets:
Cash: 25,000
A/R: 71,000
Inventory: 163,000
Property: 1,088,000
Total Assets: 1,347,800
I can't figure out how to adjust COGS, and use the inventory to come up with a budget for November and December. Please help!
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Ultra Member
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May 8, 2011, 06:26 PM
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I've answered a very similar question to this. Read through this and see if it helps. I'll check back later to see how you are doing. If you'll post what you come up with, we can check it for you.
https://www.askmehelpdesk.com/accoun...er-525821.html
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New Member
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May 8, 2011, 06:59 PM
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Comment on Just Looking's post
Thanks, I understand how to put together the purchases budget for the first month, but I'm confused about how to calculate the second month's. Do I still take 70% of out of the new inventory of 155,400?
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Ultra Member
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May 8, 2011, 07:14 PM
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Right. You take the 70% that was purchased in November and is sitting in inventory, plus you buy the other 30% needed for December in December, and you buy the 70% needed for January. Remember that those are your purchases, but your payment is on a different schedule.
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New Member
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May 8, 2011, 07:18 PM
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Ok, so for December I got $226,200. Please let me know if it is correct. As far as setting up the budget, I want to make sure I'm putting things in the right areas. There are four lines which I have to fill in. Right now I have beginning inventory first, the november's budget and then decembers budget. Lastly I have the total cash disbursements. Is this OK? Thank you!
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New Member
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May 8, 2011, 07:23 PM
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Comment on Just Looking's post
Ok, so for December I got $226,200. Please let me know if it is correct. As far as setting up the budget, I want to make sure I'm putting things in the right areas. There are four lines which I have to fill in. Right now I have beginning inventory first, the november's budget and then decembers budget. Lastly I have the total cash disbursements. Is this OK? Thank you!
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Ultra Member
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May 8, 2011, 07:28 PM
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$226,200 is correct.
In reading your question, you are asking about a Merchandises Purchases budget. At this point, the $226,200 is what you are looking for in the month of December.
I remember seeing another similar question where the problem then went on to ask for more - such as a cash flow projection, Balance Sheet, Income Statement, etc. The cash flow projection is where your cash disbursements come into play. Is that the way your problem is worded? When you say there are four lines to fill in, do you have a spreadsheet you need to complete? Are there any headings or descriptions?
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New Member
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May 8, 2011, 07:32 PM
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Comment on Just Looking's post
The heading says prepare a Merchandise Purchases budget for November and December.
Looks kind of like this:
November December
________________________________________
________________________________________
________________________________________
Total cash disembursements_________________
I have to fill in the three lines
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New Member
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May 8, 2011, 07:33 PM
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Comment on Just Looking's post
But, the months are off the right as a heading
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Ultra Member
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May 8, 2011, 07:35 PM
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Okay, so it is specifically asking for the Cash Disbursements. I suppose the lines are a little subject to interpretation, but the way I see it is that you are looking for purchases that need to be made for your Purchases Budget. To me, that is the 30% for the current month, the 70% for the following month, and the total - in this case your Dec number of $226,200 is the total.
I understand the months are across the spreadsheet. It's hard to show that in here, but I knew what you meant.
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New Member
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May 8, 2011, 10:14 PM
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Comment on Just Looking's post
Thanks :] With the three lines that I have do I use inventory, then November, then December? Or how should I title them?
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Ultra Member
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May 8, 2011, 10:20 PM
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I'm thinking you would have: (I'll show for December, but you also need Nov)
...........................................Decembe r
30% of current month.............$ 66,000
70% for following month............159,600
Total purchases.....................$226,200
I say this because your goal is to show the amount that needs to be purchased in a given month. The inventory amount was purchased in the previous month.
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New Member
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May 8, 2011, 10:25 PM
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Comment on Just Looking's post
Thank you! That will give me a blank line though. Sorry I didn't explain well. I have three lines to fill in, and the fourth line is titled "total cash disembursements"
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Ultra Member
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May 8, 2011, 10:37 PM
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I didn't add your 4th line in as I was just responding to your question about the purchases part of this question. I would show it this way:
...........................................Decembe r
30% of current month.............$ 66,000
70% for following month............159,600
Total purchases.....................$226,200
Total cash disbursements .......$xxx,xxx
The cash disbursements would be what you paid for purchases in the month of December, versus the Total purchases being what you ordered. Per the problem, it says that payments are made the month following the purchase. If you want to compute that, I will check it.
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New Member
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May 8, 2011, 10:42 PM
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Comment on Just Looking's post
Ok thank you! Do I add together the total purchases from November and December to find the total cash disbursements? If that is how to do it I got $451800
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Ultra Member
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May 8, 2011, 10:49 PM
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I would show them by month. You are right about the total amount. I'm wondering though - you said the spreadsheet shows only Nov and Dec headings? Your payments will be in Dec (for Nov) and Jan (for Dec). I'd much rather do my own spreadsheet than what they are asking - I tend to get a little detailed though. If you don't have a column for January on your spreadsheet, they must be looking for the total.
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New Member
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May 8, 2011, 10:52 PM
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Comment on Just Looking's post
Yeah, there isn't a column for January. So how do I total the cash disbursements for each month?
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Ultra Member
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May 8, 2011, 10:55 PM
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Is your 4th line separated from the other three lines or does it appear directly below them? If it is separated, I think I'd go with your $451,800. Sometimes it is difficult to know exactly what they are looking for when I can't see what you have. The important thing is that I think you understand the lesson, and now it's just a question of how to show it.
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New Member
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May 8, 2011, 10:59 PM
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Comment on Just Looking's post
It isn't separated it's directly below it.
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Ultra Member
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May 8, 2011, 11:09 PM
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Darn. I was hoping that wasn't the case because your cash disbursements for Nov and Dec occur in Dec and Jan. Also, if we really want total cash disbursements, don't forget the $21,000 of other monthly expenses paid in cash. I'm wondering if you can ask your teacher for some clarification. I don't particularly like the headings and unlabeled lines they show, but I tend to be overly detailed.
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