Powerdyne Company’s cost of goods sold is consistently 60% of sales - 25349

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III. Computing budgeted cash payments for purchases
Powerdyne Company’s cost of goods sold is consistently 60% of sales. The company plans to carry ending merchandise inventory for each month equal to 40% of the next month’s budgeted cost of goods sold. All merchandise is purchased on credit, and 50% of the purchases made during a month is paid for in that month. Another 35% is paid for during the first month after purchase, and the remaining 15% is paid for during the second month after purchase.

Expected dollar amount of sales are:

August (actual), 150,000
September (actual), 350,000
October (estimated), 200,000
November (estimated), 300,000.

Use this information to determine October’s expected cash payments for purchases.
(Hint: Use the layout as shown below, but revised for the facts given here.)
Hockey Den
Merchandise Purchases Budget
October 2011 – December 2011
October November December
Next month’s budgeted sales (units) ……………. 800 1,400 900
Ratio of inventory to future sales………………... x 90% x 90% x 90%
Budgeted ending inventory (units)………………. 720 1,260 810
Add budgeted sales (units) ……………………… 1,000 800 1,400
Required units of available merchandise………... 1,720 2,060 2,210
Deduct beginning inventory (units)……………... 900 720 1,260
Units to be purchased…………………………… 820 1,340 950
Budgeted cost per unit………………………….. $ 60 $ 60 $ 60
Budgeted cost of merchandise purchases………. $49,200 $80,400 $57,000

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