Question

Problem 23-5A 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. 1. Sales for May are expected to be $815,000. 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: Sales salaries $30,400 per month Advertising 6 % of monthly sales Delivery expense 2 % of monthly sales Sales commissions 5 % of monthly sales Rent expense $5,290 per month Depreciation $830 per month Utilities $700 per month Insurance $510 per month 5. Interest expense is $2,000 per month. Income taxes are estimated to be 30% of income before income taxes. Prepare the merchandise purchases budget for each month in columnar form. (Round answers to 0 decimal places, e.g. 5,275.) SUPPAR COMPANY San Miguel Store Merchandise Purchases Budget May June $ $ : : $ $ Link to Text Prepare budgeted multiple-step income statements for each month in columnar form. Show in the statements the details of cost of goods sold. (Round answers to 0 decimal places, e.g. 5,275.) SUPPAR COMPANY San Miguel Store Budgeted Income Statement May June $ $ $ $ Link to Text Question Attempts: Unlimited Save for later Submit Answer

Answer 1

SOLUTION

(A)

Suppar Company

San Miguel Store

Merchandise Purchase Budget

	May ($)	June ($)
Sales ($815,000 * 105%)	815,000	855,750
Cost of Goods Sold (Sales * 75%)	611,250	641,813
Add: Ending Inventory	64,181	67,390
Less: Beginning Inventory	61,125	64,181
Merchandise Purchased	614,306	645,022

Computations of Merchandise Budget-

Sales:

May is given - $815,000

June- $815,000 * 105% = $855,750

July - $855,750 * 105% = $898,536

Cost of goods sold- Sales * 75%

May - $815,000 * 75% = $611,250

June - $855,750* 75% = $641,813

July - $898,536 * 75% = $673,902

Ending Inventory: COGS from next month * 10%

May- $641,813 * 10% = $64,181

June - $673,902  * 10% = = $67,390

Beginning Inventory: COGS * 10%

May - $611,250 * 10% = $61,125

(B)

Suppar Company

San Miguel Store

Budget Income Statement for May and June 2017

	May ($)	June ($)
Expected Sales	815,000	855,750
Cost of Goods Sold (Sales * 75%)	611,250	641,813
Gross Profit (A)	203,750	213,937
Operating Expenses
Sales Salaries	30,400	30,400
Advertising (6% of Sales)	48,900	51,345
Delivery Expense (2% of Sales)	16,300	17,115
Sales Commissions (5% of Sales)	40,750	42,788
Rent Expense	5,290	5,290
Depreciation	830	830
Utilities	700	700
Insurance	510	510
Interest Expense	2,000	2,000
Total Operating Expenses (B)	131,010	150,978
Income before income tax (A-B)	72,740	62,959
Income tax @ 30%	21,822	18,888
Net Income after Tax	50,918	44,071