Question

CALCULATOR PRINTER VERSION Problem 9-5A (Part Level Submission) (Video) 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 $1,200,000. 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 $30,000 6% 2% 5% $5,390 5910 $710 $560 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. Prepare the merchandise purchases budget for each month in columnar form. SUPPAR COMPANY San Miguel Store Merchandise Purchases Budget

Answer 1

SUPPAR COMPANY San Miguel Store Merchandise Purchases Budget For Two Months Ended May 31 & June 30 May June Budgeted Sales $1,200,000 $1,260,000 (June = $1,200,000 x 105%] Add: Desired Ending Merchandise Inventory $94,500 $99,225 [May = $1,260,000 x 75% x 10%; June = $1,250,000 x 105% x 75% x 10%] Total Required Merchandise $1,294,500 $1,359,225 Less: Beginning Merchandise Inventory $90,000 $94,500 [May = $1,200,000 x 75% x 10%; June = $1,260,000 x 75% x 10%] Required Merchandise Purchase $1,204,500 $1,264,725 EXPLANATION: As it is given that June's & July's budgeted sales will be 5% higher than preceding month's sales, June's sale is calculated by multiplying May's sales by 105%. It is also given that cost of goods sold = 75% of sale value and management decided to maintain 10% of next month's cost of goods sold as ending inventory for each month. Therefore, May's ending inventory will be 10% of June's cost of goods sold, which is nothing but 10% of 75% of June's sales. Similarly, June's ending inventory will be 10% of 75% of July's sales. Each month's beginning inventory will be equal to 10% of respective month's cost of goods sold --> 10% of 75% of respective month's sales.