Question

Assume a merchandising company provides the following information from its master budget for the month of May: Sales $ 139,000 Cash paid for merchandise purchases $ 93,000 Selling and administrative expenses $ 33,000 Accounts payable, May 1st $ 26,100 Accounts payable, May 31st $ 34,000 If the company maintains no beginning or ending merchandise inventory and makes all of its inventory purchases on account, what is the budgeted net operating income for May?

Answer 1

Credit purchases = ending accounts payable + cash paid for purchases - beginning accounts payable

= $34000 + $93000 - $26100

= $100900

as there are no beginning and ending inventory therefore, credit purchases = cost of goods sold

therefore,

Particulars	Amount
Sales	$139000
Less: cost of goods sold	$100900
Gross profit	$38100
Less: selling & administrative expenses	$33000
Budgeted net operating income	$5100