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.

Interest expense is $2,000 per month. Income taxes are estimated to be 30% of income before income taxes.

a) prepare the merchandise purchases for each month in columnar form

1. Sales for May are expected to be $806,000. 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

Suppar Company Merchandise Purchases Budget For the Months of May and June, 2014 May June Expected sales in June Expected sales in July' Budgeted cost of goods sold $604,500 $634,725 846300 888615 Add: Desired ending merchandise inventory                                63,473       66,646 Total $667,973     701,371 Less: Beginning merchandise inventory 60450       63,473 Required merchandise purchases $607,523 $637,898 (1)$806000X 75% = $604500 (2)$634725 X 10% = $ 63473 (3)$888615 X 75% = $666461; $666461* 10% = $66646. (4)$604500X 10% = $ 60450

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