Question

Thornton Company sells lamps and other lighting fixtures. The purchasing department manager prepared the following inventory purchases budget. Thornton’s policy is to maintain an ending inventory balance equal to 10 percent of the following month’s cost of goods sold. April’s budgeted cost of goods sold is $79,000. Required Complete the inventory purchases budget by filling in the missing amounts. Determine the amount of cost of goods sold the company will report on its first quarter pro forma income statement. Determine the amount of ending inventory the company will report on its pro forma balance sheet at the end of the first quarter.

Answer 1

Question Completion:

Inventory Purchases Budget     January   February    March      April

Budgeted cost of goods sold  $ 60,000  $ 64,000  $ 70,000  $79,000

Plus: Desired ending inventory    6,400

Inventory needed                       66,400

Less: Beginning inventory           9,000

Purchases (on account)         $ 57,400

Answer:

Thornton Company

a) Inventory Purchases Budget     January   February    March   Total

Budgeted cost of goods sold    $ 60,000  $ 64,000  $ 70,000 $ 194,000

Plus: Desired ending inventory      6,400        7,000        7,900        7,900

Inventory needed                         66,400       71,000      77,900  

Less: Beginning inventory             9,000         6,400       7,000

Purchases (on account)           $ 57,400    $ 64,600  $ 70,900

b) Cost of goods sold for first quarter = $194,000

c) Ending Inventory at the end of first quarter = $7,900

Explanation:

Data and Calculations:

April's budgeted cost of goods sold = $79,000

Inventory Purchases Budget     January   February    March      April

Budgeted cost of goods sold  $ 60,000  $ 64,000  $ 70,000  $79,000

Plus: Desired ending inventory    6,400        7,000        7,900

Inventory needed                       66,400       71,000      77,900

Less: Beginning inventory           9,000         6,400       7,000

Purchases (on account)         $ 57,400    $ 64,600  $ 70,900

Cost of goods sold for the first quarter = $194,000 (60,000 + 64,000 + 70,000)

Ending Inventory at the end of the first quarter = 10% of $79,000 = $7,900