Question

Corporation wholesales peaches and oranges. Ms. 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	$	232,000		$	252,000		$	312,000		$	252,000		$	1,048,000
Oranges		411,000			461,000			581,000			391,000			1,844,000
Total	$	643,000		$	713,000		$	893,000		$	643,000		$	2,892,000

Based on the company’s past experience, cost of goods sold is usually 70 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.

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 $660,000, prepare the company’s budgeted annual income statement.

3. Ms.Jasper estimates next year’s ending inventory will be $34,700 for peaches and $57,900 for oranges. Prepare the company’s inventory purchases budgets for the next year, showing quarterly figures by product.

Answer 1

a.)	Sales Budget
		First Quarter	Second Quarter	Third Quarter	Fourth Quarter	Total
	Peaches ( 106% of Last year )	245,920	267,120	330,720	267,120	1,110,880
		First Quarter	Second Quarter	Third Quarter	Fourth Quarter	Total
	Oranges ( 111% of Last year )	456,210	511,710	644,910	434,010	2,046,840
b.)	Budgeted Annual Income Statement
		Amount $
	Sales Revenue ( 1,110,880 + 2,046,840 )	3,157,720
	Less: Cost of Goods Sold	2,210,404
	( 3,157,720 x 70% )
	Gross Profit	947,316
	Less: Selling & administrative expenses	660,000
	Budgeted Net Income	287,316
c. )	Peaches
		First Quarter	Second Quarter	Third Quarter	Fourth Quarter	Total
	Cost of Goods Sold @70% of sales	172,144	186,984	231,504	186,984	777,616
	Add: Desired Ending Inventory	18,698	23,150	18,698	34,700	34,700
	Less: Opening Inventory	17,214	18,698	23,150	18,698	17,214
	Budgeted Purchases	173,628	191,436	227,052	202,986	795,102
	Oranges
		First Quarter	Second Quarter	Third Quarter	Fourth Quarter	Total
	Cost of Goods Sold @70% of sales	456,210	511,710	644,910	434,010	2,046,840
	Add: Desired Ending Inventory	51,171	64,491	43,401	57,900	57,900
	Less: Opening Inventory	45,621	51,171	64,491	43,401	45,621
	Budgeted Purchases	461,760	525,030	623,820	448,509	2,059,119