Soft Shell Purchases Motorcycle Helmets Which It Custom Paints and Sells

question 178

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 35% gross profit on sales revenue. The company wants to keep a minimum inventory of $500,000 plus 10% 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:

Net Income

The residual financial gain of a company after deducting every cost, tax, and expense from the total earnings.

Note Payable

A written agreement where one party promises to pay another party a certain amount of money at a future date or on demand.

Accounting Equation

The foundational principle of accounting that maintains that assets equal the sum of liabilities and owner's equity.

Equity

Ownership interest in a company, representing the amount of assets that would be returned to shareholders if all debts were paid.