Question

Question:Brooks Company expects to sell 8,500 units for \(175 each for a total of \)1,487,500 in January and 2,500 units for \(200 each for a total of \)500,000 in February. The company expects cost of goods sold to average 70% of sales revenue, and the company expects to sell 4,700 units in March for \(280 each. Brooks’s target ending inventory is \)20,000 plus 50% of the next month’s cost of goods sold. Prepare Brooks’s inventory, purchases, and cost of goods sold budget for January and February

Short answer

Answer

Particular	January	February
Purchase	695,625	635,600
Cost of goods sold	1,041,250	350,000

Step-by-step solution

Preparation of operating budget

Brooks Company
Operating Budget
Particulars	January ($)	February ($)	Total ($)
Sale	$1,487,500	$500,000	$1,987,500
Cost of goods sold (70% of sales)	1,041,250	350,000	1,391,250
Add: Desired ending Inventory	195,000	480,600	675,600
Total Inventory	1,236,250	830,600	2,066,850
Less: Beginning Inventory	540,625	195,000	735,625
Budgeted Purchases	695,625	635,600	1,331,225

Computation of desired ending inventory and beginning inventory for January

$$\begin{gathered} \mathbf{DesiredendingInventoryforJanuary}\mathbf{=}\mathbf{Targetedending}\mathbf{+}\mathbf{50}\mathbf{\%}\mathbf{ofFebruaryCOGS} \\ \mathbf{=}\mathbf{20}\mathbf{,}\mathbf{000}\mathbf{+}\mathbf{350}\mathbf{,}\mathbf{000}\mathbf{\times }\mathbf{50}\mathbf{\%} \\ \mathbf{=}\mathbf{\$}\mathbf{195}\mathbf{,}\mathbf{000} \\ \mathit{C}\mathit{O}\mathit{G}\mathit{S}\mathit{o}\mathit{f}\mathit{M}\mathit{a}\mathit{r}\mathit{c}\mathit{h}\mathbf{=}\left(UnitSold\times SellingPricePerUnits\right)\mathbf{\times }\mathbf{70}\mathbf{\%} \\ \mathbf{=}\left(4,700\times \$280\right)\mathbf{\times }\mathbf{70}\mathbf{\%} \\ \mathbf{=}\mathbf{\$}\mathbf{921}\mathbf{,}\mathbf{200} \\ \mathbf{DesiredendingInventoryforFebruary}\mathbf{=}\mathbf{Targetedending}\mathbf{+}\mathbf{50}\mathbf{\%}\mathbf{ofMarchCOGS} \\ \mathbf{=}\mathbf{20}\mathbf{,}\mathbf{000}\mathbf{+}\mathbf{921}\mathbf{,}\mathbf{20} \\ \mathbf{BeginningInventory}\mathbf{=}\mathbf{TargetedendingInventory}\mathbf{+}\mathbf{50}\mathbf{\%}\mathbf{ofJanuaryCOGS} \\ \mathbf{=}\mathbf{20}\mathbf{,}\mathbf{000}\mathbf{+}\mathbf{1}\mathbf{,}\mathbf{041}\mathbf{,}\mathbf{250}\mathbf{\times }\mathbf{50}\mathbf{\%} \\ \mathbf{=}\mathbf{\$}\mathbf{540}\mathbf{,}\mathbf{625} \end{gathered}$$