Question

Payne Company provided the following information relevant to its inventory sales and purchases for December 2013 and the first quarter of 2014:

Dec. 2013 Jan. 2014 Feb. 2014 Mar. 2014
(Actual) (Budgeted) (Budgeted) (Budgeted)
Cost of goods sold $80,000 $140,000 $180,000 $120,000

Desired ending inventory levels are 25% of the following month's projected cost of goods sold. The company purchases all inventory on account. January Year 2 budgeted purchases are $180,000. The normal schedule for inventory payments is 60% payment in month of purchase and 40% payment in month following purchase.

Budgeted cash payments for inventory in February 2014 would be: __________

Answer 1

$171,000

Step-by-step explanation:

Purchases in February = ($120,000 * 25%) + ($180,000 -$180,000*25%)

Purchases in February = $30,000 + $135,000

Purchases in February = $165,000

Payment in February = ($180,000 * 40%) + ($165,000 * 60%)

Payment in February = $72,000 + $99,000

Payment in February = $171,000

So, the bdgeted cash payments for inventory in February 2014 will be $171,000.