Executive officers of Adams Company are wrestling with their budget for the next year. The following are two different sales estimates provided by two difference sources. Source of Estimate First Quarter Second Quarter Third Quarter Fourth Quarter Sales manager $ 378,000 $ 316,000 $ 271,000 $ 480,000 Marketing consultant 512,000 469,000 403,000 648,000 Adams’s past experience indicates that cost of goods sold is about 60 percent of sales revenue. The company tries to maintain 15 percent of the next quarter’s expected cost of goods sold as the current quarter’s ending inventory. This year’s ending inventory is $30,000. Next year’s ending inventory is budgeted to be $31,000. Required Prepare an inventory purchases budget using the sales manager’s estimate. Prepare an inventory purchases budget using the marketing consultant’s estimate.
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Executive officers of Adams Company are wrestling with their budget for the next year. The following are two different sales estimates provided by two difference sources.
| Source of Estimate | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | ||||||||
| Sales manager | $ | 378,000 | $ | 316,000 | $ | 271,000 | $ | 480,000 | ||||
| Marketing consultant | 512,000 | 469,000 | 403,000 | 648,000 | ||||||||
Adams’s past experience indicates that cost of goods sold is about 60 percent of sales revenue. The company tries to maintain 15 percent of the next quarter’s expected cost of goods sold as the current quarter’s ending inventory. This year’s ending inventory is $30,000. Next year’s ending inventory is budgeted to be $31,000.
Required
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Prepare an inventory purchases budget using the sales manager’s estimate.
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Prepare an inventory purchases budget using the marketing consultant’s estimate.
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