Linkenheim GmbH has adopted the following policies regarding merchandise purchases and inventory. At the end of any month, the inventory should be €15,000 plus 90 per cent of the cost of goods to be sold during the following month. The cost of merchandise sold averages 60 per cent of sales. Purchase terms are generally net, 30 days. A given month’s purchases are paid as follows: 20 per cent during that month and 80 per cent during the following month.

Purchases in May had been €150,000 and the inventory on May 31 was higher than planned at €210,000. The manager was upset because the inventory was too high. Sales are expected to be June, €300,000; July, €290,000; August, €340,000; and September, €400,000.

1. Compute the amount by which the inventory on May 31 exceeded the company’s policies.

2. Prepare budget schedules for June, July and August for purchases and for disbursements for purchases.

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Sales Inventory, 31 May Purchases Available for sale Inventory, 30 June Cost of goods sold Gross margin Operating expenses Wages Utilities Advertising Depreciation Office expenses Insurance and property taxes Operating income € 50 192 242 40 € 36 5 10 1 4 3 €290 202 € 88 59 € 29 Exhibit 7.13 Carlson Company - Budgeted income statement for the month ended 30 June 20X4 (in thousands)