Prepare the merchandise purchases budget for each month in columnar form. Prepar
ID: 2543418 • Letter: P
Question
Prepare the merchandise purchases budget for each month in columnar form.
Prepare budgeted multiple-step income statements for each month in columnar form. Show in the statements the details of cost of goods sold.
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 $818,000. 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 $31,000 per month Advertising 6 % of monthly sales Delivery expense 2 % of monthly sales Sales commissions 5 % of monthly sales Rent expense $5,100 per month Depreciation $860 per month Utilities $650 per month Insurance $600 per month 5. Interest expense is $2,000 per month. Income taxes are estimated to be 30% of income before income taxes.
Explanation / Answer
SOLUTION
(1) Merchandise purchases budget
Desired Ending Merchandise Inventory-
May - $644,175 *10% = $64,417
June-$676,384 *10% = $67,638
July COGS = $818,000*105%*105%*75%= $676,384
(2) Budgeted multiple-step income statements
May ($) June ($) Budgeted Cost of Goods Sold (818,000*75%),($818,000*105%*75%) 613,500 644,175 Add: Desired Ending Merchandise Inventory 64,417 67,638 Total 677,917 711,813 Less: Beginning Merchandise Inventory (61,350) (64,417) Required Merchandise Purchases 616,567 647,396