Case 22.2 Whitaker Company budgets payroll at $3,000 per month plus a percentage

Question

Case 22.2 Whitaker Company budgets payroll at $3,000 per month plus a percentage of monthly sales. The June operating expense budget includes total payroll of $10,500 with budgeted sales of $150,000. Sales for July are budgeted at $165,000 while purchases of inventory for July are budgeted at $85,000 Depreciation and insurance for July are estimated at $750 and $500, respectively. Expenses related to purchasing inventory are budgeted at 5% of purchases for the month. The purchase of $3,000 in equipment and $1,200 in furniture is expected in July l) Refer to Case 22.2. The July payroll should be budgeted at what amount? 2) Refer to Case 22.2. What are the total operating expenses budgeted for July? 3) Refer to Case 22.2. If the percentage used to budget payroll increased 20%, what would the total payroll budgeted for July be?

Explanation / Answer

1) The Budget payroll as a percentage of sales is calculated as follows:

Hence budget payroll is $3000 plus 5% of sales.

The budget payroll for July is as follows:

Hence, July payroll budget amount is $11,250

2) Total operating expenses for July:

3) If the percentage used to budget payroll increased to 20%, the total payroll budgeted for July would be:

June Budget payroll $10,500 Fixed $3,000 Variable $7,500 Sales $1,50,000 % of sales 5%

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