Big Sound, a merchandising company specializing in home computer speakers, budgets its monthly cost of goods sold to equal 70% of sales. Its inventory policy calls for ending inventory at the end of each month to equal 20% of the next month's budgeted cost of goods sold. All purchases are on credit, and 25% of the purchases in a month is paid for in the same month. Another 60% is paid for during the first month after purchase, and the remaining 15% is paid for in the second month after purchase. The following sales budgets are set: July, $350,000; August, $290,000; September, $320,000; October, $275,000; and November, $265,000. Compute the following: (1) budgeted merchandise purchases for July, August, September, and October; (2) budgeted payments on accounts payable for September and Octobcr; and (3) budgeted ending balances of accounts payable for September and October. (Hint: For part 1, refer to Exhibits 20A.2 and 20A.3 for guidance, but note that budgeted sales are in dollars for this assignment.) EXHIBIT 20A.2 General Formula for Merchandise Purchases Budget
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Big Sound, a merchandising company specializing in home computer speakers, budgets its monthly cost of goods sold to equal 70% of sales. Its inventory policy calls for ending inventory at the end of each month to equal 20% of the next month's budgeted cost of goods sold. All purchases are on credit, and 25% of the purchases in a month is paid for in the same month. Another 60% is paid for during the first month after purchase, and the remaining 15% is paid for in the second month after purchase. The following sales budgets are set: July, $350,000; August, $290,000; September, $320,000; October, $275,000; and November, $265,000.
Compute the following: (1) budgeted merchandise purchases for July, August, September, and October; (2) budgeted payments on accounts payable for September and Octobcr; and (3) budgeted ending balances of accounts payable for September and October. (Hint: For part 1, refer to Exhibits 20A.2 and 20A.3 for guidance, but note that budgeted sales are in dollars for this assignment.)
EXHIBIT 20A.2 General Formula for Merchandise Purchases Budget
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