Cave Hardware's forecasted sales for April, May, June, and July are $190,000, $210,000, $180,000, and $230,000, respectively. Sales are 70% cash and 30% credit with all accounts receivables collected in the month following the sale. Cost of goods sold is 80% of sales and ending inventory is maintained at $35,000 plus 20% of the following month's cost of goods sold. All inventory purchases are paid 22% in the month of purchase and 78% in the following month. What are the budgeted cash payments in June to account for the inventory purchases at Cave Hardware?

Question

Quizplus · Accepted Answer

To calculate the budgeted cash payments for inventory purchases in June, we need to calculate the cost of goods sold and the inventory purchases for May and June first:

Cost of goods sold (COGS) for May:
COGS = 80% of May sales = 0.8 x $210,000 = $168,000

Inventory purchases for May:
COGS + Ending inventory - Beginning inventory = Purchases
$168,000 + (0.2 x $180,000) - $35,000 = $32,000

Inventory purchases for June:
COGS + Ending inventory - Beginning inventory = Purchases
$180,000 x 0.8 + (0.2 x $210,000) - $35,000 = $53,000

Total inventory purchases for May and June:
$32,000 + $53,000 = $85,000

To calculate the budgeted cash payments for these inventory purchases, we need to split them into payments made in May and payments made in June:

Payments for May:
22% x $32,000 = $7,040

Payments for June:
78% x $32,000 + 100% x $53,000 = $25,600 + $53,000 = $78,600

Therefore, the budgeted cash payments in June to account for the inventory purchases are $78,600.

The correct answer is C) $160,736.

Cave Hardware's Forecasted Sales for April, May, June, and July