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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
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 45% is paid for during the first month after purchase, and the remaining 5% is paid for during the second month after purchase. Expected sales are August (actual), $325,000; September (actual), $360,000; October (estimated), $340,000; and November (estimated), $400,000. Use this information to determine October's expected cash payments for purchases. Calculate Monthly Purchases: November 240,000 Budgeted ending inventory Cost of goods sold (estimated) Required available inventory Budgeted beginning inventory Required purchases August September October $ 43,200 $ 40,800 $ 48,000 195,000 216,000 204,000 238,200 256,800 252,000 39,000 43,200 40,800 $ 199,200 $ 213,600 $ 211,200 Calculate Payments Made for Inventory: ---------- Purchases paid in ------- September October Purchases August After October $ 199,200 August purchases September purchases October purchases 213,600 211,200 Determine October's Expected Cash Payments for Purchases. October's expected cash payments for purchases
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