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1. selected figures from a firm’s budget for next month are as follows:
sales $450000
gross profit on sales 30%
decrease in trade payables over the month $10000
increase in cost of inventory held over the month $18000What is the budgeted payment to trade payables?
The answer says
$((450000 x 70% + 18000 + 10000) = 343000Why would we take 70% of 450000. Ideally 70% is cost of sales isn’t it. Why is it part of trade payables
70% is the cost of sales and is therefore the cost of goods actually used during the period, which is 315,000.
Since they increase inventory by $18,000, they must have purchased 315,000 + 18,000 = 333,000.
Since they reduced payables by 10,000, they must have actually paid 333,000 + 10,000.
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