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Tiger Drug Store carries a variety of health and beauty aids, including 500-count bottles of vitamins. The sales budget for vitamins for the first six months of the year is presented below. The owner of Tiger Drug believes that ending inventories should be sufficient to cover 10 percent of the next month’s projected sales. On January 1, 23 bottles of vitamins were in inventory. Required: 1. Prepare a merchandise purchases budget in bottles of vitamins for as many months as you can. 2. If vitamins are priced at cost plus 80 percent, what is the dollar cost of purchases for each month of your purchases budget?

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Cornerstones of Cost Management (C...

4th Edition
Don R. Hansen + 1 other
Publisher: Cengage Learning
ISBN: 9781305970663

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Section
BuyFindarrow_forward

Cornerstones of Cost Management (C...

4th Edition
Don R. Hansen + 1 other
Publisher: Cengage Learning
ISBN: 9781305970663
Chapter 8, Problem 19E
Textbook Problem
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Tiger Drug Store carries a variety of health and beauty aids, including 500-count bottles of vitamins. The sales budget for vitamins for the first six months of the year is presented below.

Chapter 8, Problem 19E, Tiger Drug Store carries a variety of health and beauty aids, including 500-count bottles of

The owner of Tiger Drug believes that ending inventories should be sufficient to cover 10 percent of the next month’s projected sales. On January 1, 23 bottles of vitamins were in inventory.

Required:

  1. 1. Prepare a merchandise purchases budget in bottles of vitamins for as many months as you can.
  2. 2. If vitamins are priced at cost plus 80 percent, what is the dollar cost of purchases for each month of your purchases budget?

1.

To determine

Prepare a merchandise purchases budget.

Explanation of Solution

Direct Materials Purchases Budget: The direct materials purchases budget is prepared to estimate the quantity of material to be purchased for production. The purchases to be made are calculated by adding the total budgeted production to the ending inventory and then deducting the beginning inventory.

Prepare a merchandise purchases budget:

Table (1)

Working note 1:

Calculate the desired ending inventory:

For January:

Desired ending inventory = 10%of the next month sales=10% of February sales=160×10%=16

For February:

Desired ending inventory = 10%of the next month sales=10% of March sales=180×10%=18

For March:

<

2.

To determine

Calculate the amount of purchases for each month of your purchases budget.

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Chapter 8 Solutions

Cornerstones of Cost Management (Cornerstones Series)
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