(Learning Objective 5: Use the COGS model to make management decisions)Spicer Industries prepares budgets to help manage the company. Spicer is budgeting forthe fiscal year ended January 31, 2018. During the preceding year ended January 31, 2017,sales totaled $9,700 million and cost of goods sold was $6,400 million. At January 31, 2017,inventory was $1,500 million. During the upcoming 2018 year, suppose Spicer expects costof goods sold to increase by 12%. The company budgets next year’s ending inventory at$1,800 million.Requirement1. One of the most important decisions a manager makes is how much inventory to buy. Howmuch inventory should Spicer purchase during the upcoming year to reach its 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.
(Learning Objective 5: Use the COGS model to make management decisions)
Spicer Industries prepares budgets to help manage the company. Spicer is budgeting for
the fiscal year ended January 31, 2018. During the preceding year ended January 31, 2017,
sales totaled $9,700 million and cost of goods sold was $6,400 million. At January 31, 2017,
inventory was $1,500 million. During the upcoming 2018 year, suppose Spicer expects cost
of goods sold to increase by 12%. The company budgets next year’s ending inventory at
$1,800 million.
Requirement
1. One of the most important decisions a manager makes is how much inventory to buy. How
much inventory should Spicer purchase during the upcoming year to reach its budget?
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