Example 1: Purchases Budget Problem for Retailing Concern. Note that the format shown here is the same as would be used for the production and materials purchases budgets for a manufacturing concern. Lair Company is a retailer of leather handbags. The handbags are imported and are sometimes difficult to obtain on short notice. Therefore, the managers want to have 40% of the next month's estimated sales on hand at the end of the month. The Company's sales budget for the first quarter follows: Dollars Units January $200,000 2,000 February 240,000 2,400 March 300,000 3,000 The handbags cost $80 each and sell for $100. Prepare a purchases budget for February.

Example 1: Purchases Budget Problem for Retailing Concern. Note that the format shown here is the same as would be used for the production and materials purchases budgets for a manufacturing concern. Lair Company is a retailer of leather handbags. The handbags are imported and are sometimes difficult to obtain on short notice. Therefore, the managers want to have 40% of the next month's estimated sales on hand at the end of the month. The Company's sales budget for the first quarter follows: Dollars Units January $200,000 2,000 February 240,000 2,400 March 300,000 3,000 The handbags cost $80 each and sell for $100. Prepare a purchases budget for February.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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LB Hardware is a company in the retail industry. Assume it is the end of the year and they are preparing their budgets for the upcoming year. The following information is available: Expected sales are: January 280 000€; February 220 000€. The company's Cost of Sales is 30% of sales. The company's purchasing policy is to buy 80% in the month of sale and 20% in the month before sale. Variable selling and administrative expenses are budgeted at 10% of sales except for a provision of bad debts which came to 2 000€ in January. Also bad debts expected to be actually written off during January come to 1 000€. Fixed selling and administrative expenses are budgeted at 30 000€ every month which excludes depreciation of 5 000€. The company is paying a 15 000€ instalment per month in order to pay back a long-term loan. Of this amount 5 000€ represents interest payment and 10 000€ payment on the principal amount. The company's tax rate is 20% and tax is paid at the end of the year. Required:…
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