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:

1. Expected monthly sales for April, May, June, and July are $280,000, $250,000, $370,000, and $150,000, respectively.
2. Cost of goods sold is 30 percent of expected sales.
3. CGC’s desired ending inventory is 25 percent of the following month’s cost of goods sold.
4. Monthly operating expenses are estimated to be:

• Salaries: $36,000
• Delivery expense: 5 percent of monthly sales
• Rent expense on the warehouse: $7,500
• Utilities: $1,500
• Insurance: $150
• Other expenses: $250

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) budgeted cost of purchases for each month in second quarter
	april	may	june
sale revenue (a)	280000	250000	370000
less: cost of goods sold (a)*30%	84000	75000	111000
add: inventory at the end	18750	27750	11250
less: inventory at the beginning	21000	18750	27750
budgeted cost of purchase	193750	184000	242500
inventory at the end	18750	27750	11250
	75000*25%	111000*25%	150000*30%*25%
inventory at the beginning	21000	18750	27750
	84000*25%	75000*25%	111000*25%
2) Budgeted income statement for each month of the quarter
	april	may	june
sales revenue	280000	250000	370000
less: cost of goods sold	84000	75000	111000
Gross profit (a)	196000	175000	259000
operating expenses
salaries	36000	36000	36000
delivery expenses @5%	14000	12500	18500
rent expenses on warehouse	7500	7500	7500
utilities	1500	1500	1500
insurance	150	150	150
other expenses	250	250	250
Total operating expenses (b)	59400	57900	63900
net profit (a)-(b)	136600	117100	195100

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