BUDGETING

The Best Friend Foods Ltd sells dog food in 5 kg bags for $6.20 per bag. Sales estimates are as follows:

Bags

September 40,000

October 35,000

November 30,000

• August sales were 30,000 bags of dog food.
• Best Friend Foods Ltd's desired ending inventory of dog food each month is 30% of the next month's sales estimates (in bags).
• Best Friend Foods Ltd's purchases bags of dog food at $4.70 per bag and pays for them the month after the purchase.

Required:

1. Prepare a purchase budget for September and October.
2. Why is it important to set budgets and how do budgets assist the business?

i.

Purchase budget		September	October

ii.