Question

Nunn Company, which sells electric razors, had $200,000 of cost of goods sold during the month of June. The company projects a 5 percent increase in cost of goods sold during July. The inventory balance as of June 30 is $15,000, and the desired ending inventory balance for July is $16,000. Nunn pays cash to settle 70 percent of its purchases on account during the month of purchase and pays the remaining 30 percent in the month following the purchase. The accounts payable balance as of June 30 was $18,000.

Required:
a. Determine the amount of purchases budgeted for July.
b. Determine the amount of cash payments budgeted for inventory purchases in July.

Answer 1

Answer:

A.$211,000

B. $165,700

Explanation:

A. Calculation to determine the amount of purchases budgeted for July

First step is to calculate the Projected Cost of Goods sold for June

Projected Cost of Goods sold for June = $200,000*(1+0.05)

Projected Cost of Goods sold for June = $200,000*1.05

Projected Cost of Goods sold for June = $210,000

Now let calculate Purchase for July using this formula

Purchase for July = Cost of goods sold + Closing inventory - Beginning inventory

Let plug in the formula

Purchase for July = $210,000 + $16,000- $15,000 = $211,000

Therefore the amount of purchases budgeted for July will be $211,000

b. Calculation to Determine the amount of cash payments budgeted for inventory purchases in July.

Cash Payment Budgeted in July

Purchase of June$18,000

Add: For Purchase of July $147,700

($211,000 x 70%)

Cash Payment Budgeted $165,700

Therefore the amount of cash payments budgeted for inventory purchases in July will be

$165,700