Preparing an inventory purchases budget and schedule of cash payments Drennan Company's purchasing manager, Neil Grey, is preparing a purchases budget for the next quarter. At his request, Robert Chan, the manager of the sales department, forwarded him the following preliminary sales budget.

For budgeting purposes, Drennan estimates that cost of goods sold is 75 percent of sales. The company desires to maintain an ending inventory balance equal to 20 percent of the next period's cost of goods sold. The September ending inventory is $90,000. Drennan makes all purchases on account and pays 70 percent of accounts payable in the month of purchase and the remaining 30 percent in the following month. The balance of accounts payable at the end of September is $90,000.
Required
a. Prepare an inventory purchases budget for October, November, and December.
b. Determine the amount of ending inventory Drennan will report on the end-of-quarter pro forma balance sheet.
c. Prepare a schedule of cash payments for inventory for October, November, and December.
d. Determine the balance in accounts payable Drennan will report on the end-of-quarter pro forma balance sheet.

Transcribed Image Text:

December October November January Budgeted sales $800,000 $600,000 $750,000 $900,000