Chapter 20: Q29E (page 921)
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 October; 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.)
Short Answer
Accounts payable is a term used to define the amount owned by an organization from its creditors during the period of an accounting year.
Step by step solution
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