High School

KPLC plans to inventory at the end of each month as follows: May $275000, June 270000, and August 240000. Sales are expected to be June, 440000, July 350000, August 420000. Cost of goods sold 60% of sales. Purchase in April were 250000, May 180000, payment for each month purchase are made as follows, 10% during that month: 80% the next month. Prepare budget schedule for June, July, and August for purchases and disbursement for purchases.

Answer :

Budget Schedule for June, July, and August:

Month Purchases Disbursements

June $259,000 $169,900

July $180,000 $225,200

August $252,000 $169,200

Calculate Cost of Goods Sold (COGS)

  • Given that the COGS is 60% of sales:

COGS for June = 0.60 × 440000 = $264000
COGS for July = 0.60 × 350000 = $210000
COGS for August = 0.60 × 420000 = $252000

Determine Required Purchases

  • Required purchases can be calculated using the formula:

Purchases = COGS + Ending Inventory - Beginning Inventory

We'll first calculate the ending inventory for each month, which is provided as:

  • Ending Inventory for June = $270000
    Ending Inventory for July = Inventory for August, i.e., $240000
    Ending Inventory for August = Not provided, assume the inventory remains the same, $240000

June:

  • Beginning Inventory = $275000 (from May)
  • Required Purchases = $264000 (COGS) + $270000 (Ending Inventory) - $275000 (Beginning Inventory) = $259000

July:

  • Beginning Inventory = $270000 (Ending Inventory of June)
  • Required Purchases = $210000 (COGS) + $240000 (Ending Inventory) - $270000 (Beginning Inventory) = $180000

August:

  • Beginning Inventory = $240000 (Ending Inventory of July)
  • Required Purchases = $252000 (COGS) + $240000 (Ending Inventory) - $240000 (Beginning Inventory) = $252000

Determine Disbursements

The payment schedule is 10% during the current month and 80% the next month. Thus:

June Disbursements:

  • 10% of June Purchases = 0.10 × $259000 = $25900
  • 80% of May Purchases = 0.80 × $180000 = $144000
  • Total June Disbursements = $25900 + $144000 = $169900

July Disbursements:

  • 10% of July Purchases = 0.10 × $180000 = $18000
  • 80% of June Purchases = 0.80 × $259000 = $207200
  • Total July Disbursements = $18000 + $207200 = $225200

August Disbursements:

  • 10% of August Purchases = 0.10 × $252000 = $25200
  • 80% of July Purchases = 0.80 × $180000 = $144000
  • Total August Disbursements = $25200 + $144000 = $169200

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