A company has adopted the following policies regarding merchandise purchases
and inventory. At the end of any month, the inventory should be $18,500 plus 80% of the cost
of goods to be sold during the following month. The cost of merchandise sold averages 75%
of sales. Purchase terms are generally net 30 days. A given month's purchases are paid as
follows: 35% during that month and 65% during the following month.
Purchases in May had been $160,000 and the inventory on May 31 was higher than planned at
$220,000. The manager was upset because the inventory was too high. Sales are expected to
be June, $320,000; July, $305,000; August, $340,000; and September, $400,000.
(1) Compute the amount by which the inventory on May 31 exceeded the company's policies.
(2) Prepare budget schedules for June, July, and August for purchases and for disbursements
Please review the attached sheet.
Ans 1 The Inventory exceeds by $9500 (220000-210500) as per company policies.
The solution computes the purchase made in a month and monthly cash payment made for the purchases.