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Hello sir ,
when working through the exam kit I got stuck in this problem which is
Selected figures from a firm’s budget for next month are as follows.
sales $450,000
Gross profit on sales 30%
Decrease in trade payables over the month $10,000
Increase in cost of inventory held over the month $18,000
What is the budgeted payment to trade payables
A $343,000
B $323,000
C $307,000
D $287,000The answer which I got was option D and the answer given as solution was option A I’m confused about the last two adjustments given in the question . i.e what they mean in this question and how it effects the cost of sales to arrive at budgeted trade payables
The cost of sales = 450,000 – (30% x 450,000) = 315,000.
So they need to buy 315,000 to cover what they are selling. However they also increased their inventory by 18,000 during the month, so the total they must have bought is 315,000 + 18,000 = 333,000.
However in addition to having had to pay 333,000 for the goods they bought during the month, the question says that they reduced their payables by 10,000. So they must have paid the supplies an extra 10,000 which means they paid a total of 343,000.
Have you watched my free lectures on budgeting? The lectures are a complete free course for Paper MA and cover everything needed to be able to pass the exam well.
Good day everyone can I have someone to study with I need help am in trouble with this paper please
zandile: I don’t know why you have posted this here. Post in the Study Buddy Forum.
many thanks sir i’ve understood now i mistakenly thought the increase in cost of inventory held was holding costs of inventory thank you for your simple and clear explanation and yes I do always watch your lectures before attempting the exam kit . once again thanks for the explanation and have a great day!!
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