Exercise 7-26A Merchandising: Computing budgeted cash payments for purchases LO P4

Hardy Companys cost of goods sold is consistently 60% of sales. The company plans to carry ending merchandise inventory for each month equal to 20% of the next months budgeted cost of goods sold. All merchandise is purchased on credit, and 40% of the purchases made during a month is paid for in that month. Another 45% 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), $405,000; September (actual), $400,000; October (estimated), $260,000; and November (estimated), $400,000.

Use this information to determine Octobers expected cash payments for purchases.

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Calculate monthly purchases: August September October November Budgeted ending inventory Required available inventory Required purchases Calculate payments made for inventory: Purchases September paid in 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