Question

Zeller Company estimates that 2017 sales will be $40,000 in quarter 1, $48,000 in quarter 2, and $58,000 in quarter 3. Cost of goods sold is 50% of sales. Management desires to have ending finished goods inventory equal to 10% of the next quarter’s expected cost of goods sold. Prepare a merchandise purchases budget by quarter for the first 6 months of 2017.

Answer 1

Answer and Explanation:

As per the data given in the question,

Quarter

                                                        1                        2                     6 month

Budgeted cost of goods sold (40,000×0.50)    (48,000×0.50)    $44,000

                                                        $20,000          $24,000

Add: Desired ending inventory (24,000×0.10)   (58,000×0.10)    $8,200

                                                         $2,400            $5,800

Total required units              $20,000+$2,400   $24,000+$5,800  $52,200

                                                         $22,400           $29,800

Less: Begin. merchandise inv. $20,000×0.10    $24,000×0.10      $4,400

                                                         $2,000             $2,400

Budgeted purchase                        $20,400           $27,000          $47,800