Humboldt, Inc. sells fireworks. The company’s marketing director developed the following cost of goods sold budget for April, May, June, and July.

April May June July
Budgeted cost of goods sold $ 37,500 $ 34,000 $ 30,000 $ 45,000

Humboldt had a beginning inventory balance of $1,800 on April 1 and a beginning balance in accounts payable of $7,400. The company desires to maintain an ending inventory balance equal to 10 percent of the next period’s cost of goods sold. Humboldt makes all purchases on account. The company pays 60 percent of accounts payable in the month of purchase and the remaining 40 percent in the month following purchase.

Prepare an inventory purchases budget for April, May, and June.

Answer and Explanation:

The preparation of an inventory purchases budget for April, May, and June is shown below:-

                               April              May            June          July     Quarter End

Budgeted cost of

goods sold           $37,500        34,000     $30,000      $45,000

Add: Ending balance

of inventory

(10% of Next month's

COGS)                $3,400         $3,000       $4,500

Total needs        $40,900        $37,000      $34,500

Less: Beginning balance of

inventory             $1,800         $3,400       $3,000

Required inventory

purchases           $39,100       $33,600      $31,500        $104,200

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