Hardy Companys cost of goods sold is consistently 60 of sale

Hardy Company\'s cost of goods sold is consistently 60% of sales. The company plans ending merchandise inventory for each month equal to 20% 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 sales are: August (actual), $335,000; September (actual), $370,000; October (estimated), $300,000; and November (estimated), $310,000 Use this information to determine October\'s expected cash payments for purchases Calculate Monthly Purchases: August September October November Budgeted ending inventory Required available inventory Required purchases Calculate Payments Made for Inventory Purchases paid in September Purchases August October After October August purchases September purchases October purchases Determine October\'s Expected Cash Payments for Purchases October\'s expected cash payments for purchases

Solution

October\'s Expected Cash payment for Purchases $        1,96,140 Working: 1) Calculation of Monthly Purchases: August September October November Budgeted Ending Inventory $           44,400 $            36,000 $       37,200 Add Budgeted costs of good sold           2,01,000            2,22,000        1,80,000 Required Available inventory           2,45,400            2,58,000        2,17,200 Less Budgeted beginning inventory               40,200                44,400            36,000 Required Purchases $       2,05,200 $        2,13,600 $    1,81,200 Working: August September October November Sales           3,35,000            3,70,000        3,00,000            3,10,000 Cost of goods sold @ 60% of Sales           2,01,000            2,22,000        1,80,000            1,86,000 July August September October Next Month\'s Costs of good sols           2,01,000            2,22,000        1,80,000            1,86,000 Ending Inventory               40,200                44,400            36,000                37,200 2) Calculation of Payment made for inventory: ----Purchases paid in----- Purchases August September October After October August Purchases $       2,05,200 $        1,02,600 $       71,820 $           30,780 September Purchases $       2,13,600 $    1,06,800 $           74,760 $              32,040 October Purchases $       1,81,200 $           90,600 $              90,600 Total $        1,02,600 $    1,78,620 $        1,96,140 $          1,22,640 3) October Expectetd cash payment for Purchases $        1,96,140