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 $190,000, $160,000, $280,000, and $60,000, respectively. 2. Cost of goods sold is 40 percent of expected sales. 3. CGC's desired ending inventory is 50 percent of the following month's cost of goods sold. 4. Monthly operating expenses are estimated to be: • Salaries: $32,000 • Delivery expense: 7 percent of monthly sales • Rent expense on the warehouse: $3,000 • Utilities: $600 • Insurance: $300 • Other expenses: $400 Required: 1. Compute the budgeted cost of purchases for each month in the second quarter. April May June Total cost of budgeted purchases 2. Complete the budgeted income statement for each month in the second quarter. CITRUS GIRL COMPANY Budgeted Income Statement For the Month Ending April 30 May 31 June 30 Budgeted Gross Marain Budgeted Net Operating Income

Answer 1

1. Budgeted cost of purchases for each month
	April	May	June
Total cost of budgeted purchases [Refer working note 1]	$70,000	$88,000	$68,000
				2. Budgeted income statement
CITRUS GIRL COMPANY
Budgeted Income Statement
For the Month Ending
	April	May	June
Budgeted sales revenue	$190,000	$160,000	$280,000
Budgeted cost of goods sold   [40% of sales revenue]   [Refer working note 1]	$76,000	$64,000	$112,000
Budgeted gross margin   [Sales - Cost of Goods Sold]	$114,000	$96,000	$168,000
Budgeted Selling and Administrative expenses             [Refer working note 4]	$49,600	$47,500	$55,900
Budgeted net operating income   [Gross margin - Selling and Administrative expenses]	$64,400	$48,500	$112,100

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Working note 1 - Budgeted cost of budgeted purchases
	April	May	June
Expected sales                                                                                            (a)	190,000	160,000	280,000
Cost of goods sold (%)                                                                              (b)	40%	40%	40%
Cost of goods sold (Amount)                                                                     (a x b)	$76,000	$64,000	$112,000
Add: Desired ending inventory              [Refer working note 2]	$32,000	$56,000	$12,000
	$108,000	$120,000	$124,000
Less: Beginning inventory                     [Refer working note 3]	$38,000	$32,000	$56,000
Total cost of budgeted purchases	$70,000	$88,000	$68,000

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Working Note 2 - Calculation of desired ending inventory
For April                 [Cost of goods sold for May x 50% = (May Sales x 40%) x 50% = ($160,000 x 40%) x 50%]	$32,000
For May                  [Cost of goods sold for June x 50% = (June Sales x 40%) x 50%] = ($280,000 x 40%) x 50%]	$56,000
For June                  [Cost of goods sold for July x 50% = (July Sales x 40%) x 50%] = ($60,000 x 40%) x 50%]	$12,000

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Working Note 3 - Calculation of beginning inventory
For April                   [Ending inventory for March = Cost of goods sold for April x 50% = (April Sales x 40%) x 50% = ($190,000 x 40%) x 50%]	$38,000
For May                     [Ending inventory of April]	$32,000
For June                     [Ending inventory of May]	$56,000

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Working note 4 - Budgeted selling and administrative expenses
	April	May	June
Sales                                                 (a)	$190,000	$160,000	$280,000
Delivery expense (%)                       (b)	7%	7%	7%
Delivery expense                              (c = a x b)	$13,300	$11,200	$19,600
Salaries                                             (d)	$32,000	$32,000	$32,000
Rent expense                                      (e)	$3,000	$3,000	$3,000
Utilities                                              (f)	$600	$600	$600
Insurance:                                          (g)	$300	$300	$300
Other expenses                                   (h)	$400	$400	$400
Total                                                   (c + d + e + f + g + h)	$49,600	$47,500	$55,900