Soft Shell Purchases Motorcycle Helmets Which It Custom Paints and Sells

question 114

Essay

Soft Shell purchases motorcycle helmets which it custom paints and sells to motorcycle dealers and repair shops worldwide. Sales are expected to be $3,000,000 in June, $5,000,000 in July $6,000,000 in August and $3,000,000 in September. Soft Shell sets it prices to average 40% gross profit on sales revenue. The company wants to keep a minimum inventory of $500,000 plus 15% of the next month's cost of goods sold.
Required:
Prepare an inventory, purchases, and cost of goods sold budget for the months of July, and August.

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Definitions:

Compound Interest

Interest calculated not only on the original principal amount but also on the accrued interest from past periods on a deposit or loan.

Earnings Rate

Earnings rate refers to the percentage of return generated by an investment or the profitability of a company over a specified period.

Present Value Index

A ratio used to estimate the present value of an investment's benefits divided by the present value of its costs.

Net Cash Flow

The amount of cash generated or used by a company in a given period, calculated as cash inflows minus cash outflows.