Question

Ahmed Company purchases all merchandise on credit. It recently budgeted the following month-end accounts payable balances and merchandise inventory balances. Cash payments on accounts payable during each month are expected to be: May, $1,200,000; June, $1,500,000; July, $1,400,000; and August, $1,400,000
Accounts Payable Merchandise Inventory
May 31 $150,000 $260,000
June 30 130,000 500,000
July 31 300,000 300,000
August 31 120,000 330,000
(1) Compute the budgeted amounts of merchandise purchases.
(2) Compute the budgeted amounts of cost of goods sold.

Answer 1

Answer:

1. Computation of Budgeted amount of Merchandise Purchases

Particulars                                        June             July            August

Ending Accounts Payable          $130,000     $300,000      $120,000

Payments on account              $1,500,000   $1,400,000   $1,400,000

                                                 $1,630,000     $1,700,000   $1,520,000

Beginning Accounts Payable  $150,000       $130,000       $300,000  

Purchases                                 $1,480,000    $1,570,000    $1,220,000

2. Computation of Budgeted amount of Cost of Goods Sold

Particulars                                        June             July            August

Beginning inventory                   $260,000   $500,000      $300,000

Purchases                                  $1,480,000   $1,570,000    $1,220,000

Cost of goods AFS                    $1,740,000   $2,070,000   $1,520,000

Ending Inventory                       $500,000     $300,000      $330,000

Cost of goods sold                   $1,240,000   $1,770,000    $1,190,000