Question

*74) Perry Company has provided the following information:*

Month Budgeted Sales
March $200,000
April 212,000
May 204,000
June 218,000
July 210,000

In addition, the gross profit rate is 40% and the desired inventory level is 30% of next month's cost of sales.

Required:
Prepare a purchases budget for April through June.

April May June Total
Desired ending inventory
$36,720 $39,240 $37,800 $113,760
Add: Cost of goods sold
127,200 122,400 130,800 380,400
Total needed 163,920 161,640 168,600 494,160
Less: Opening inventory
38,160 36,720 39,240 114,120

Answer 1

To prepare a purchases budget for Perry Company from April through June, calculate monthly COGS as 60% of sales, determine desired ending inventory as 30% of the next month's COGS, and adjust for inventory changes. The total purchases for each month are then calculated by adding COGS to the desired ending inventory of the following month and subtracting the opening inventory.

Step-by-step explanation:

The main answer for calculating a purchases budget for Perry Company from April through June involves estimating the cost of goods to be purchased based on budgeted sales, gross profit rate, and desired inventory levels. First, we calculate the cost of goods sold (COGS) for each month by subtracting the gross profit from the sales; for example, if the gross profit rate is 40%, then COGS would be 60% of sales. Then we determine the desired ending inventory, which is 30% of the next month's COGS.For April, the COGS is 60% of $212,000, which is $127,200. The desired ending inventory for April is 30% of May's COGS (60% of $204,000), which is $36,720. To obtain the total needed for April, add COGS for April to Mya's desired ending inventory.Repeat this process for May and June, ensuring that the previous month's desired ending inventory becomes the next month's opening inventory. After preparing the purchases budget, you can total the values to assess the overall financial planning for the timeframe.