Question

Problem 22-05A (Part Level Submission) The budget committee of Suppar Company collects the following data for its San Miguel Store in preparing budgeted income statements for May and June 2020. 1. Sales for May are expected to be $800,000. 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 Advertising Delivery expense Sales commissions Rent expense Depreciation Utilities Insurance $35,000 6% 2 % 5 % $5,000 $800 $600 $500 per month of monthly sales of monthly sales of monthly sales per month per month per month per month 5. Interest expense is $2,000 per month. Income taxes are estimated to be 30% of income before income taxes.

Answer 1

Solution:

1.)Suppar Company

San Miguel Store

Merchandise Purchase Budget

	May	June
Sales	$800,000	$840,000
Budgeted cost of goods sold	$600,000	$630,000
Add: Desired Ending Merchandise inventory	$63,000	$66,150
Total	$663,000	$696,150
Less: Beginning merchandise inventory	-$60,000	-$63,000
Required Merchandise Purchases	$603,000	$633,150

Explanation:

Sales:
May (given)	$800,000
June ($800000 ×1.0 5)	$840,000
July ($840,000 ×1.05)	$882,000
Cost of goods sold:
Sales×75% may($800,000 ×75%)	$600,000
June ($840,000 × 75%)	$630,000
July ($882,000 × 75%)	$661,500
Ending inventory:
COGS from next month× 10% = ($630,000×10%) May	$63,000
June ($661,500 ×10%)	$66,150
Beginning inventory:
COGS × 10% May (600,000 ×10%)	60,000
June (June beginning inventory = May Ending inventory)	63,000

2.)Suppar Company

San Miguel Store

Budgeted Income Statement

For the Month of May and June, 2020

	May ($)	June($)
Sales	800,000	840,000
Cost of goods sold (sales ×75%)	600,000	630,000
Gross Profit	200,000	210,000
Operating Expenses:
Sales Salaries	35,000	35,000
Advertising (6% of sales)	48,000	50,400
Delivery Expenses (2% of sales)	16,000	16,800
Sales Commission (5% of sales)	40,000	42,000
Rent Expenses	5,000	5,000
Depreciation	800	800
Utilities	600	600
Insurance	500	500
Interest Expenses	2,000	2,000
Total Operating Expenses	147,900	153,100
Income before income tax	52,100	56,900
Income tax 30%	15,630	17,070
Net income after tax	36,470	39,830