Question

Hamby Corporation is a merchandising company that is preparing a master budget for the third quarter...

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?

Homework Answers

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
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