Accounting: What the Numbers Mean 9th Edition by Wayne W McManus, Daniel F Viele, David H Marshall

Exercise 62

Purchases budget Brooklyn Furniture, a retail store, has an average gross profit ratio of 42%. The sales forecast for the next four months follows:

May	$100,000
June	88,000
July	124,000
August	160,000

Management’s inventory policy is to have ending inventory equal to 80% of the cost of sales for the subsequent month, although it is estimated that the cost of inventory at April 30 will be $45,000.

Required:

Calculate the purchases budget, in dollars, for the months of May and June.

Step 1 of 2

Raw material purchase budget:

Raw material purchase budget is prepared to show how much raw material is required to be manufactured or purchased, by the time period in order to fulfil the production budget requirement.

The computation of purchases budget, in dollars, for the months of May and June is as follows: