Question

Florida Curtain Works is in the process of preparing its budget for next year. Cost of goods sold has been estimated at 60% of sales. Fabric purchases and payments are to be made during the month preceding the month of sale. Wages are estimated at 20% of sales and are paid during the month of sale. Other operating costs amounting to 25% of sales are to be paid in the month following the month of sales. Sales revenue is forecasted as follows:

Month Sales
February $440,000
March $450,000
April $480,000
May $500,000
June $510,000
What is the amount of fabric purchases during the month of March?
a. $480,000.
b. $336,000.
c. $288,000.
d. $300,000.

Answer 1

Florida Curtain Works

1. Fabric purchases during the month of March:

c. $288,000.

Step-by-step explanation:

a) Data and Calculations:

Month Sales Cost of Sales Purchases Wages Others

February $440,000 $264,000 $270,000 $88,000

March $450,000 270,000 288,000 90,000 $110,000

April $480,000 288,000 300,000 96,000 112,500

May $500,000 300,000 306,000 100,000 120,000

June $510,000 306,000 102,000 125,000

b) Florida Curtain Works can prepare its budget for the next year by estimating the cost of goods to be sold, the purchases and payments for Fabric during the month based on trade terms, and the wages and other expenses to incur. The budget helps its management to plan, prepare, exert efforts toward achieving the set targets, and analyze actual performance against budget.