Question

Jasper Fruits Corporation wholesales peaches and oranges. Barbara Jasper is working with the company’s accountant to prepare next year’s budget. Ms. Jasper estimates that sales will increase 3 percent for peaches and 8 percent for oranges. The current year’s sales revenue data follow:

	First Quarter			Second Quarter			Third Quarter			Fourth Quarter			Total
Peaches	$	235,000		$	255,000		$	315,000		$	255,000		$	1,060,000
Oranges		418,000			468,000			588,000			398,000			1,872,000
Total	$	653,000		$	723,000		$	903,000		$	653,000		$	2,932,000

Based on the company’s past experience, cost of goods sold is usually 65 percent of sales revenue. Company policy is to keep 20 percent of the next period’s estimated cost of goods sold as the current period’s ending inventory. (Hint: Use the cost of goods sold for the first quarter to determine the beginning inventory for the first quarter.)

Required

1. Prepare the company’s sales budget for the next year for each quarter by individual product.

2. If the selling and administrative expenses are estimated to be $630,000, prepare the company’s budgeted annual income statement.

3. Ms.Jasper estimates next year’s ending inventory will be $35,500 for peaches and $56,500 for oranges. Prepare the company’s inventory purchases budgets for the next year, showing quarterly figures by product.

Answer 1

Part 1

	First Quarter	Second Quarter	Third Quarter	Fourth Quarter	Total
Peaches	242020	262650	324450	262650	1091770
Orange	451440	505440	635040	429840	2021760
Total	$693460	$768090	$959490	$692490	$3113530

First quarter

Peaches = 235000*1.03 = 242020

Organe = 418000*1.08 = 451440

Second quarter

Peaches = 255000*1.03 = 262650

Orange = 468000*1.08 = 505440

Third quarter

Peaches = 315000*1.03 = 324450

Organe = 588000*1.08 = 635040

Fourth quarter

Peaches = 255000*1.03 = 262650

Organe = 398000*1.08 = 429840

Part 2

Jasper Fruits Corporation Budgeted Annual Income Statement
Sales Revenue	3113530
Cost of Goods Sold	2023795
Gross Profit	1089735
Selling & Administrative Expenses	630000
Net Income	$459735

3113530*65% = 2023795

Part 3

Jasper Fruits Corporation Inventory Purchases Budget
	First Quarter	Second Quarter	Third Quarter	Fourth Quarter	Total
Peaches
Sales	242020	262650	324450	262650	1091770
Cost of Goods Sold	157313	170723	210893	170723	709652
Desired ending Inventory (20% * next quarter’s cost of goods sold)	20%	20%	20%	20%
Ending Inventory	34145	42179	34145	35500	35500
Total Inventory Required	191458	212902	245038	206223	745152
Less: Beginning Inventory	31463	34145	42179	34145	31463
Budgeted Inventory Purchases	$159995	$178757	$202859	$172078	$713689
Orange
Sales	451440	505440	635040	429840	2021760
Cost of Goods Sold	293436	328536	412776	279396	1314144
Desired ending Inventory (20% * next quarter’s cost of goods sold)	20%	20%	20%	20%
Ending Inventory	65707	82555	55879	56500	56500
Total Inventory Required	359143	411091	468655	335896	1370644
Less: Beginning Inventory	58687	65707	82555	55879	58687
Budgeted Inventory Purchases	$300456	$345384	$386100	$280017	$1311957