The budget committee of Suppar Company collects the following data for its San M

Question

The budget committee of Suppar Company collects the following data for its San Miguel Store in preparing budgeted income statements for May and June 2017.

QUESTION

Prepare budgeted multiple-step income statements for each month in columnar form. Show in the statements the details of cost of goods sold. (Round answers to 0 decimal places, e.g. 2,500.)

1. Sales for May are expected to be $803,000. Sales in June and July are expected to be 5% higher than the preceding month. 2. Cost of goods sold is expected to be 75% of sales. 3. Company policy is to maintain ending merchandise inventory at 10% of the following month’s cost of goods sold. 4. Operating expenses are estimated to be as follows:

Explanation / Answer

Solution:

Suppar Company

San Miguel Store

Budget Income Statement for May and June 2017

Particulars

May ($)

June ($)

Expected Sales

803,000

843,150 (WN1)

Less: Cost of goods sold

Beginning merchandise Inventory (WN2)

60,225

63,236

Add: Merchandise Inventory purchased (WN2)

605,261

635,525

Less: Ending merchandise Inventory (WN2)

63,236

66,398

Cost of goods sold (Sales X 75%)

602,250

632,363

Gross Profit (Expected sales-cost of goods sold)

200,750

210,787

Operating expenses

Sales salaries

30,000

30,000

Advertising (6% of monthly sales)

48,180

50,589

Delivery expense (2% of monthly sales)

16,060

16,863

Sales commissions (5% of monthly sales)

40,150

42,158

Rent expense

5,390

5,390

Depreciation

910

910

Utilities

710

710

Insurance

560

560

Total Operating expenses

141,960

147,180

Net Income (Gross Profit – Total operating expenses)

58,790

63,607

Working Notes (WN):

1. June sales: $ 803,000 + 5% of $ 803,000 = $ 803,000 + $ 40,150 = $ 843,150

   July sales: $843,150 + 5% of $843,150 =$843,150 + $ 42,158 = $ 885,308

2. Cost of Goods Sold: Sales x 75%

= $803,000 x .75 = $602,250 (May)

= $843,150 x .75 = $632,363 (June)

= $885,308x .75 = $663,981 (July)

Ending merchandise Inventory: COGS from next month x 10%

= $632,363 x .10 = $63,236 (May)

= $663,981 x .10 = $66,398 (June)

Beginning merchandise Inventory: COGS x 10%

*May beginning inventory would be same as April ending inventory.

As per company policy April ending inventory

= 10% of May Cost of goods sold

= $602,250 x .10 = $60,225 (May)

**May Ending Inventory will be June Beginning inventory.

Particulars

May ($)

June ($)

Cost of goods sold

602,250

632,363

Add: Ending inventory

63,236

66,398

Less: Beginning inventory

(60,225)*

(63,236)**

Merchandise Inventory purchased

605,261

635,525

Particulars

May ($)

June ($)

Expected Sales

803,000

843,150 (WN1)

Less: Cost of goods sold

Beginning merchandise Inventory (WN2)

60,225

63,236

Add: Merchandise Inventory purchased (WN2)

605,261

635,525

Less: Ending merchandise Inventory (WN2)

63,236

66,398

Cost of goods sold (Sales X 75%)

602,250

632,363

Gross Profit (Expected sales-cost of goods sold)

200,750

210,787

Operating expenses

Sales salaries

30,000

30,000

Advertising (6% of monthly sales)

48,180

50,589

Delivery expense (2% of monthly sales)

16,060

16,863

Sales commissions (5% of monthly sales)

40,150

42,158

Rent expense

5,390

5,390

Depreciation

910

910

Utilities

710

710

Insurance

560

560

Total Operating expenses

141,960

147,180

Net Income (Gross Profit – Total operating expenses)

58,790

63,607

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