Question

Jasper Fruits Corporation wholesales peaches and oranges. Barbara Jasper is working with the company’s accountant to prepare next year’s budget. Ms. Jasper estimates that sales will increase 6 percent for peaches and 11 percent for oranges. The current year’s sales revenue data follow:

	First Quarter			Second Quarter			Third Quarter			Fourth Quarter			Total
Peaches	$	225,000		$	245,000		$	305,000		$	245,000		$	1,020,000
Oranges		411,000			461,000			581,000			391,000			1,844,000
Total	$	636,000		$	706,000		$	886,000		$	636,000		$	2,864,000

Based on the company’s past experience, cost of goods sold is usually 60 percent of sales revenue. Company policy is to keep 10 percent of the next period’s estimated cost of goods sold as the current period’s ending inventory. (Hint: Use the cost of goods sold for the first quarter to determine the beginning inventory for the first quarter.)

Required

1. Prepare the company’s sales budget for the next year for each quarter by individual product.

2. If the selling and administrative expenses are estimated to be $650,000, prepare the company’s budgeted annual income statement.

3. Ms.Jasper estimates next year’s ending inventory will be $35,500 for peaches and $56,700 for oranges. Prepare the company’s inventory purchases budgets for the next year, showing quarterly figures by product.

	First Quarter Second Quarter Third Quarter Fourth Quarter Total Peaches $0 Oranges $0 Total $0 $0 $0 $0 $0

	JASPER FRUITS CORPORATION Budgeted Annual Income Statement 0 $0

	First Quarter Second Quarter Third Quarter Fourth Quarter Inventory needed 0 0 0 0

	First Quarter Second Quarter Third Quarter Fourth Quarter Inventory needed 0 0 0 0 Required purchases $0 $0 $0 $0

Answer 1

a)		1st Qtr	2nd Qtr	3rd Qtr	4th Qtr	Total
	Peaches	$             238,500.00	$ 259,700.00	$ 323,300.00	$ 259,700.00	$ 1,081,200.00
	Oranges	$             456,210.00	$ 511,710.00	$ 644,910.00	$ 434,010.00	$ 2,046,840.00
	Total	$             694,710.00	$ 771,410.00	$ 968,210.00	$ 693,710.00	$ 3,128,040.00

b)	Budgeted Annual Income Statement
	Particulars	Amount
	Total sales	$         3,128,040.00
Less:	Cost of goods sold	$         1,876,824.00
	(60% of total sales)
	Gross profit	$         1,251,216.00
Less:	Selling and administrative	$             650,000.00
	expense
	Net Profit	$             601,216.00

		1st Qtr			2nd Qtr			3rd Qtr			4th Qtr
c)	Particulars	Peaches	Oranges		Peaches	Oranges		Peaches	Oranges		Peaches	Oranges
	COGS	$ 143,100.00	$   273,726.00		$ 155,820.00	$   307,026.00		$ 193,980.00	$ 386,946.00		$ 155,820.00	$ 260,406.00
	Add: Closing Stock	$    15,582.00	$     30,702.60		$    19,398.00	$     38,694.60		$    15,582.00	$     26,040.60		$    35,500.00	$    56,700.00
	Less: Opening Stock	$    14,310.00	$     27,372.60		$    15,582.00	$     30,702.60		$    19,398.00	$     38,694.60		$    15,582.00	$    26,040.60
	Purchases	$ 144,372.00	$   277,056.00		$ 159,636.00	$   315,018.00		$ 190,164.00	$ 374,292.00		$ 175,738.00	$ 291,065.40

Notes: The question says that 10% of subsequent period's COGS is the closing inventory of current period. Which means 10% of current period's COGS is the opening opening inventory of current period.

To arrive at the purchases figures of each quarter, reverse calculation would be required.

In the question, closing inventory for the last quarter is given. By that we can calculate the purchases that'd be required during the last quarter.

Closing inventory of peaches for the last quarter is $ 35,500 (given). Cost of goods sold for the same product and same period is $ 155,820 (i.e., 60% of peaches sales revenue for that period). Opening inventory would be 10% of COGS, which is $ 15,582. Therefore, purchases required for that period for peaches is COGS+Closing stock-Opening Stock = $ 155,820+       $ 35,500- $ 15,582 = $ 175,738.

Rest of the calculations are made in the same way.