The inventory of the Manchester Appliance Company was 200,000 on May 31. The manager was upset because
Question:
The inventory of the Manchester Appliance Company was £200,000 on May 31. The manager was upset because the inventory was too high. She has adopted the following policies regarding merchandise purchases and inventory. At the end of any month, the inventory should be £15,000 plus 90 percent of the cost of goods to be sold during the following month. The cost of merchandise sold averages 60 percent of sales. Purchase terms are generally net, 30 days. A given month’s purchases are paid as follows: 20 percent during that month and 80 percent during the following month.
Purchases in May had been £150,000. Sales are expected to be: June, £300,000; July, £280,000; August, £340,000; and September, £400,000.
1. Compute the amount by which the inventory on May 31 exceeded the manager’s policies.
2. Prepare budget schedules for June, July, and August for purchases and for disbursements for purchases.
Step by Step Answer:
Management Accounting
ISBN: 978-0132570848
6th Canadian edition
Authors: Charles T. Horngren, Gary L. Sundem, William O. Stratton, Phillip Beaulieu