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

Question

The budget committee of Hardesty Company collects the following data for its San Miguel Store in preparing budgeted income statements for May and June 2012.
Sales for May are expected to be $800,000. Sales in June and July are expected to be 10% higher than the preceding month.

Cost of goods sold is expected to be 75% of sales.

Company policy is to maintain ending merchandise inventory at 20% of the following month's cost of goods sold.

Operating expenses are estimated to be:

Sales salaries $30,000 per month
Advertising 5% of monthly sales
Delivery expense 3% of monthly sales
Sales commissions 4% of monthly sales
Rent expense $5,000 per month
Depreciation $800 per month
Utilities $600 per month
Insurance $500 per month

Budgeted Income Statement
May June
Sales 800,000 880,000

I need to know how to do the rest of the cost of goods section?

Explanation / Answer

Sales:
May = 800000
June = 800000*(1+10%) = 880000
July = 880000*(1+10%) = 968000

Cost of goods sold = 75% of sales
COGS
May = 75%*800000 = 600000
June = 75%*880000 = 660000
July = 75%*968000 = 726000

All the other monthly operating expenses listed are not included in COGS. COGS is just the raw material consumed and other costs of manufacturing. Other costs in the question come under SG&A expenses, depreciation etc.

In the income statement use the below:
+Sales
-COGS
-Sales Salaries $30,000
-Advertising (5% of sales)
-Delivery expense (3% of sales)
-Sales commissions (4% of sales)
-Rent expense $5,000
-Depreciation $800
-Utilities $600
-Insurance $500

For May:
+Sales $800,000
-COGS $600,000
-Sales Salaries $30,000
-Advertising (5% of sales) = $40,000
-Delivery expense (3% of sales) = $24,000
-Sales commissions (4% of sales) = $32,000
-Rent expense $5,000
-Depreciation $800
-Utilities $600
-Insurance $500

May Income = $67,100

I hope you will be able to repeat this for the remaining two months using the May example.

Please rate my answer!
Thanks in advance :)

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