Caribbean Tool and Die Company's forecasted sales for April, May, June, and July are $150,000, $225,000, $180,000, and $210,000, respectively. Sales are 50% cash and 50% credit with all accounts receivables collected in the month following the sale. Cost of goods sold is 60% of sales and ending inventory is maintained at $85,000 plus 20% of the following month's cost of goods sold. All inventory purchases are paid 20% in the month of purchase and 80% in the following month.
What are the budgeted cash payments in June for inventory purchases?

Question

Quizplus · Accepted Answer

To calculate the budgeted cash payments in June for inventory purchases, we need to consider both the 20% payment for June purchases and the 80% payment for May purchases. First, calculate the cost of goods sold (COGS) for May and June. May's COGS is 60% of $225,000, which is $135,000. June's COGS is 60% of $180,000, which is $108,000. The ending inventory for May is $85,000 plus 20% of June's COGS ($108,000 * 20% = $21,600), totaling $106,600. The purchases in May are the ending inventory for May minus the beginning inventory for May (which is $85,000 plus 20% of May's COGS, $135,000 * 20% = $27,000), totaling $106,600 - $112,000 = -$5,400 (indicating no additional purchases needed). The purchases in June are the ending inventory for June minus the beginning inventory for June (which is $106,600), totaling $85,000 + $21,600 - $106,600 = $0 (indicating no additional purchases needed). Therefore, the cash payments in June are 80% of May's purchases ($0) plus 20% of June's purchases ($0), totaling $0. However, since the question asks for budgeted cash payments, we must consider the payments for previous purchases, which are 80% of May's purchases ($108,000) and 20% of June's purchases ($0), totaling $126,000.

Caribbean Tool and Die Company's Forecasted Sales for April, May