Problem 23-5A The budget committee of Suppar Company collects the following data

Question

Problem 23-5A 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 1. 2. 3. 4. Sales for May are expected to be $801,000. Sales in June and July are expected to be 5% 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 10% of the following month's cost of goods sold Operating expenses are estimated to be as follows: $31,800 Sales salaries Advertising Delivery expense Sales commissions Rent expense Depreciation Utilities Insurance per month of monthly sales of monthly sales of monthly sales per month per month per month per month 6 % 2 % 5 % $5,510 $830 $620 $600 5. Interest expense is $2,000 per month. Income taxes are estimated to be 30% of income before income taxes.

Explanation / Answer

Budgeted Income Statement Note For May and June 2017 May June July Sales $801,000 $841,050 $883,102.50 Cost of Good Sold   (75% of sales) $600,750 $630,788 $662,327 Gross Profit $200,250 $210,263 Operating expenses Selling Expenses Sales Salaries $31,800 $31,800 Advesrtising (6% of sales) $48,060.00 $50,463.00 Delivery Expenses (2%of sales) $16,020.00 $16,821.00 Sales Commission (5% of sales) $40,050.00 $42,052.50 Administrative Expenses Rent Expenses 5510 5510 Depreciation 830 830 Utilities 620 620 Insurance 600 600 Total Operating Expenses $143,490 $148,697 Operating Income $56,760 $61,566 Other Income and Expenses    - Interest Expense $2,000 $2,000 Income before taxes $54,760 $59,566 Income Tax Expense (30%) $16,428.0 $17,870 Net Income $38,332.0 $41,696 Purchase Budget For May and June 2017 May June July Cost of Good sold $600,750 $630,788 $662,327 Closing Inventory (10% of next month COGS) 63078.75 $66,232.69 Total Finised Goods Required 663828.75 697020.188 Less: Beginning Inventory $60,075.0 63079 Beginning Inventory of May= Closing Inventory of April Purchases 603754 633941 Closing Inventory of April= 10% of $600750 (May COGS)

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