Question

Hamby Corporation is a merchandising company that is preparing a master budget for the third quarter of the calendar year. The company’s balance sheet as of June 30th is shown below:

Hamby Corporation
Balance Sheet
June 30
Assets
Cash	$	76,000
Accounts receivable		137,000
Inventory		86,100
Plant and equipment, net of depreciation		230,000
Total assets	$	529,100
Liabilities and Stockholders’ Equity
Accounts payable	$	91,000
Common stock		312,000
Retained earnings		126,100
Total liabilities and stockholders’ equity	$	529,100

The company managers have made the following additional assumptions and estimates:

1. Estimated sales for July, August, September, and October will be $410,000, $430,000, $420,000, and $440,000, respectively.

2. All sales are on credit and all credit sales are collected. Each month’s credit sales are collected 35% in the month of sale and 65% in the month following the sale. All of the accounts receivable at June 30 will be collected in July.

3. Each month’s ending inventory must equal 30% of the cost of next month’s sales. The cost of goods sold is 70% of sales. The company pays for 40% of its merchandise purchases in the month of the purchase and the remaining 60% in the month following the purchase. All of the accounts payable at June 30 will be paid in July.

4. Monthly selling and administrative expenses are always $58,000. Each month $8,000 of this total amount is depreciation expense and the remaining $50,000 relates to expenses that are paid in the month they are incurred.

5. The company does not plan to borrow money or pay or declare dividends during the quarter ended September 30. The company does not plan to issue any common stock or repurchase its own stock during the quarter ended September 30.

How much is the Company's expected Net Operating Income for the quarter ending on September 30?

Answer 1

Net operating income is the difference between Operating Revenue generated during the period and the expenses directiy incurred to generate operating revenue.

Net Operating Income= Sales-COGS-Admin exp-salaries-Depreciation & amortisation-selling and distribution expenses

	July	August	September	Quarter
Sales	410000	430000	420000	1260000
Cost of goods sold	287000	301000	294000	882000
Depreciation	8000	8000	8000	24000
Selling and distribution expenses	50000	50000	50000	150000
Total cost	345000	359000	352000	1056000
Net operating Income	65000	71000	68000	204000