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	$	229,000		$	249,000		$	309,000		$	249,000		$	1,036,000
Oranges		405,000			455,000			575,000			385,000			1,820,000
Total	$	634,000		$	704,000		$	884,000		$	634,000		$	2,856,000

Based on the company’s past experience, cost of goods sold is usually 65 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

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

If the selling and administrative expenses are estimated to be $630,000, prepare the company’s budgeted annual income statement.

Ms.Jasper estimates next year’s ending inventory will be $34,200 for peaches and $57,700 for oranges. Prepare the company’s inventory purchases budgets for the next year, showing quarterly figures by product.

Answer 1

A) Sales Budget

Sales budget by increasing 6% for Peaches and 11% for Orange of each quaarter from last year. On the assumpstion that the same trend will follow.

eg: peach 1st quarter (229,000*1.06)=242,740

peach 2nd quarter (249,000*1.06)=263940

,,,,,,,,,,,,,,,,,,,,,,,,,,,

orange quarter 1 (405,000*1.11)=449,550

	First Quarter	2nd Quarter	3rd Quarter	4th Quarter	Total(individual fruit)
Peaches	242,740	263,940	327,540	263,940	1,098,160
Orange	449,550	505,050	638,250	427,350	2,020,200
Total					3,118,360

B) Budgeted Annual Income Statement

	Peaches	Orange	Total
Revenue	1,098,160	2,020,200	3,118,360
Cost Of Sales(65%*3,118,360)			(2,026,934)
Operating Profit			1,091,426
Selling and admin expense			(630,000)
Net profit			461,426

C)

First Quarters Beigning inventory=Cost of sales of 1st quarter*10%

Peache's=(242,740*65%)*10%

=242,740*0.65*0.1 =15778

   Orange=(449,550*.65)*0.1 = 29220

This amount of opening stock will be there.

Inventory Purchase Budget-Peaches

PEACHES	1st Q	2nd Q	3rd Q	4th Q
Cost of sale(242,740*65%/263940*65%/.......)	157,781	171,561	212,901	171,561
Opening (as above/171,561*10%/.....)	15,778	17,156	21,290	17,156
Purchase for quarter(cos-opening)ie,row1-row2	142,003	154,405	191,611	154,405
Closing stock(next quarters opening)	17156	21,290	17,156	34,200(given)
Total to be Purchased(For quarter+closing)	159,159	175,695	208,767	188,605

Inventory Purchase Budget-Orange

ORANGE	1st Q	2nd Q	3rd Q	4th Q
Cost of sale	292,207	328,282	414,862	277,777
Opening 10%*cos	29,220	32,828	41,486	27,777
Purchase for this quarter(cos-opening)	262,987	295,454	373,376	250,000
Closing Stock(next quarter opening)	32,828	41,486	27,777	57,700(given)
Total to be Purchased(Purchase for this Q+Closing)	295,815	336,940	401,153	307,700