bala wrote: Lon Co's budget committee is preparing its master budget on the following projections:- Sales                       $2,800,000 Decrease in inventory  $70000 Decrease in A/p          $150000 Gross margin                40% What are Lon's estimated cash disbursement for inventories? ans is- projected cost of sales which is $1,680,000. projected purchases is the $1,68,0000 cost of sales less $70000 projected decrease in inventory which is $,1610,000. projected cash payments equal the projected purchases of $ 1,610,000  plus the $150000 decrease in A/P which is $1,760,000. i dont understand why is it decrease in inventory added to projected purchases? i though it is subtracted from purchases. can someone help me clarify this? Thanks!

You need to breakdown COGS section (for example):

This is what you know so far:

Beg. Inv:         70,000

Plus: Purch-     X (variable)

Less: End. Inv- -0-     

COGS: 1,680,000

So all you fill in is purchases with algebra. 70,000 + X = 1,680,000

or X = 1,680,000 - 70,000.

I hope this helps!