Rice’s Retail store, is formulating a budget for the second quarter of the year.
ID: 2455003 • Letter: R
Question
Rice’s Retail store, is formulating a budget for the second quarter of the year.
Revenue Estimates:
April
$1,495,000
May
$1,430,000
June
$1,560,000
While markups on individual items may vary, Rice’s management estimates that the average selling price represents a 25% markup on the cost. (ie, expects to generate $125 of revenue on a $100 item).
The company is planning to have 30% of the following months inventory needs on hand. (ie, EI would be 30% of the next month’s CGS).
In addition to the cost of goods purchased, Rice will budget 80 hours of labor, at a cost of $10 per hour, for every $10,000 of revenue. Like many stores, Rice’s Retail tends to adjust the number of checkout clerks, stocking personnel, and other labor based on actual sales, which influences the volume of work needed. Rice’s other operating costs are:
Supervisor’s salaries $24,500 per month
Rent and Utilities $38,000 per month
Depreciation $12,000 per month
Other $62,000 per month
Required:
What is the purchases budget for May?
What is the direct labor budget for May?
Prepare the budgeted income statement for May.
Prepare a cash budget for May using the following additional information:
Assume that Rice’ Retail collects 90% of its revenue in the month of the sale and the remainder in the following month. Rice’s pays for 70% of its purchases in the month of the purchase and the remainder in the following month. Rice’s also expects to buy and pay for some new display units costing $24,000 in May. Finally, Rice’s Retail expects to begin May with a cash balance of $25,000.
April
$1,495,000
May
$1,430,000
June
$1,560,000
Explanation / Answer
Rice’s Retail store, is formulating a budget for the second quarter of the year.
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