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 $320,000, $290,000, $410,000, and $190,000, respectively. 2. Cost of goods sold is 50 percent of expected sales. 3. CGC's desired ending inventory is 45 percent of the following month's cost of goods sold. 4. Monthly operating expenses are estimated to be: • Salaries: $40,000 • Delivery expense: 4 percent of monthly sales • Rent expense on the warehouse: $9,500 • Utilities: $1,900 • Insurance: $270 • Other expenses: $370 Required: 1. Compute the budgeted cost of purchases for each month in the second quarter. April May June Total cost of budgeted purchases | $ 153,250

Answer 1

1)	Budgeted cost of purchases
	Particulars			April	May	June	July
	COGS			$ 160,000.00	$ 145,000.00	$ 205,000.00	$ 95,000.00
Add:	Desired ending inventory			$   65,250.00	$   92,250.00	$   42,750.00
Less:	Beginning inventory			$ (72,000.00)	$ (65,250.00)	$ (92,250.00)
	Cost of budgeted purchase			$ 153,250.00	$ 172,000.00	$ 155,500.00

2)	Budgeted income statement
	Particulars			April	May	June
	Budgeted sales revenue			$ 320,000.00	$ 290,000.00	$ 410,000.00
Less:	COGS			$(160,000.00)	$(145,000.00)	$(205,000.00)
	Gross Margin			$ 160,000.00	$ 145,000.00	$ 205,000.00
Less:	Operating expenses
	Salaries			$   (40,000.00)	$   (40,000.00)	$   (40,000.00)
	Delivery expense			$   (12,800.00)	$   (11,600.00)	$   (16,400.00)
	Rent expense			$     (9,500.00)	$     (9,500.00)	$     (9,500.00)
	Utilities			$     (1,900.00)	$     (1,900.00)	$     (1,900.00)
	Insurance			$        (270.00)	$        (270.00)	$        (270.00)
	Other expense			$        (370.00)	$        (370.00)	$        (370.00)
	Total operating expenses			$   (64,840.00)	$   (63,640.00)	$   (68,440.00)
	Budgeted net operating income			$    95,160.00	$    81,360.00	$ 136,560.00