The following information pertains to Moon Ltd in 2020:

Month Sales Purchases

January $ 62 000 $ 33 000

February 84 000 42 000

March 101 000 61 000

Cash is collected from customers in the following pattern:

Month of sale 40%

Month following the sale 60%

45% of purchases are paid for in cash in the month of purchase, and the balance is paid the following month.

Employees wages are 30% of sales. Other operating costs are $38 000 per month (including $10 000 of depreciation). Both of these are paid in the month incurred.

Part 1 (12 marks)

Mattress World is a retailing business that sells mattresses. The expected sales volume (i.e. units of product to be sold) for the first four months in 2020 are as follows:

Month Sales (unit)

January 100

February 140

March 130

April 120

The following additional information is available:

Budgeted purchase price for mattresses is $100.

30 units were in the inventory at the end of December 2019.

Mattress world maintain an ending inventory balance of 30% of the next months expected sales.

Required

Prepare the Inventory and Purchase Budget for the first three months in 2020. (12 marks)

SOLUTION

Part 2 (8 marks)

The following information pertains to Moon Ltd in 2020:

Month Sales Purchases

January $ 62 000 $ 33 000

February 84 000 42 000

March 101 000 61 000

Cash is collected from customers in the following pattern:

Month of sale 40%

Month following the sale 60%

45% of purchases are paid for in cash in the month of purchase, and the balance is paid the following month.

Employees wages are 30% of sales. Other operating costs are $38 000 per month (including $10 000 of depreciation). Both of these are paid in the month incurred.