Question

Widden Company, which sells electric razors, had $320,000 of the cost of goods sold during the month of June. The company projects a 9 percent increase in the cost of goods sold during July. The inventory balance as of June 30 is $33,000, and the desired ending inventory balance for July is $34,000. Widden pays cash to settle 75 percent of its purchases on account during the month of purchase and pays the remaining 25 percent in the month following the purchase. The accounts payable balance as of June 30 was $37,000.
A. Determine the amount of purchases budgeted for July?
B. Determine the amount of cash payments budgeted for inventory purchases in July?

Answer 1

Answer:

(a) $349,800

(b) $299,350

Explanation:

Given that,

cost of goods sold during the month of June = $320,000

Increase in the cost of goods sold during July = 9%

Closing balance of June = $33,000

Desired ending inventory balance for July = $34,000

Accounts payable balance as of June 30 = $37,000

(A) Amount of purchases budgeted for July:

= Cost of goods sold + Closing inventory - Opening inventory

= [$320,000 × (1 + 0.09)] + $34,000 - $33,000

= $348,800 + $34,000 - $33,000

= $349,800

(B) Amount of cash payments budgeted for inventory purchases in July:

= Opening accounts receivables + 75% of purchases in July

= $37,000 + (75% × $349,800)

= $37,000 + $262,350

= $299,350