Question

Citrus Girl Company (CGC) purchases quality citrus produce from local growers and sells the produce via the Internet across the United States. To keep costs down, CGC maintains a warehouse, but no showroom or retail sales outlets. CGC has the following information for the second quarter of the year:

Expected monthly sales for April, May, June, and July are $210,000, $180,000, $300,000, and $80,000, respectively.

Cost of goods sold is 40 percent of expected sales.

CGC’s desired ending inventory is 50 percent of the following month’s cost of goods sold.

Monthly operating expenses are estimated to be:

Salaries: $30,000

Delivery expense: 5 percent of monthly sales

Rent expense on the warehouse: $4,000

Utilities: $800

Insurance: $300

Other expenses: $400

Required:
1. Compute the budgeted cost of purchases for each month in the second quarter.

2. Complete the budgeted income statement for each month in the second quarter.

Answer 1

1. Calculation of budgeted cost of purchase for each month in the second quarter -

	April	May	June
sales	210000	180000	300000
COGS (40% of sales)	84000	72000	120000
opening	42000	36000	60000
purchase	78000	96000	76000
closing	36000	60000	16000
COGS	84000	72000	120000

Note -(a). opening of april is computed as 50% of april COGS because march closing should be on the same pattern 50% of COGS of following month.

(b) purchase would be computed as closing + COGS - opening = purchase.

2. Computation of budgeted income for the second quarter -

	particulars	April	May	June
	Revenue from sales	210000	180000	300000
less	COGS	84000	72000	120000
	Gross Margin	126000	108000	180000
	Monthly operating expenses:
less	salaries	30000	30000	30000
	Deliveiry expenses(5% of sales)	10500	9000	15000
	Rent of warehouse	4000	4000	4000
	utilities	800	800	800
	insurance	300	300	300
	other expenses	400	400	400
	Total operating Expenses	46000	44500	50500
	Net Income	80000	63500	129500

Please comment in case of any clarification required.