Question

Rooney Company, which sells electric razors, had $350,000 of cost of goods sold during the month of June. The company projects a 5 percent increase in cost of goods sold during July. The inventory balance as of June 30 is $28,000, and the desired ending inventory balance for July is $29,000. Rooney pays cash to settle 75 percent of its purchases on account during the month of purchase and pays the remaining 25 percent in the month following the purchase. The accounts payable balance as of June 30 was $39,000.

Required:
a. Determine the amount of purchases budgeted for July.
b. Determine the amount of cash payments budgeted for inventory purchases in July.

Answer 1

A. $368,500

B. $276,375

Step-by-step explanation:

A. Calculation to determine the amount of purchases budgeted for July

Using this formula

Budgeted purchase = Cost of goods sold + Ending inventory - Beginning inventory

Let plug in the formula

Budgeted purchase=$350*000*1.05 + $29,000 - $28,000

Budgeted purchase=$367,500+$29,000-$28,000

Budgeted purchase=$368,500

Therefore the amount of purchases budgeted for July is $368,500

b. Calculation to Determine the amount of cash payments budgeted for inventory

Cash payment = $368,500*75%

Cash payment= $276,375

Therefore the amount of cash payments budgeted for inventory is $276,375