Brooks Company expects to sell 8 comma 500 units for $ 175 each for a total of $ 1 comma 487 comma 500 in January and 2 comma 500 units for $ 200 each for a total of $ 500 comma 000 in February. The company expects cost of goods sold to average 70% of sales revenue, and the company expects to sell 4 comma 700 units in March for $ 280 each. Brooks's target ending inventory is $ 20 comma 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.

Inventory Budget for January and February.

Closing Inventory : January = $20,000 + ($350,000 × 50%)  = $195,000

Closing Inventory : February = $20,000 + ($921,200 × 50%) =  $480,500

Purchases Budget for January and February.

                                                         January           February

Sales                                                $1,487,500     $500,000

Add Budgeted Closing Inventory    $195,000      $480,500

Needed                                           $1,682,500     $980,500

Less Budgeted Opening Inventory        $0          ($195,000)

Budgeted Purchases                      $1,682,500     $785,500

Costs of Sales Budget for January and February.

                                          January        February          March

Sales                               $1,487,500     $500,000     $1,316,000

Cost of Sales at 70%      $1,041,250      $350,000      $921,200

Explanation:

Prepare the Cost of Sales Budget first including March figures.

Then use the Cost of Sales Budget to prepare Inventory Budget for January and February.

Then, finally use the Inventory Budget to prepare the Purchases Budget for January and February.

Note : Follow that order as the Budgets are closely related.

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