Question

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 $960,000. 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		$31,500		per month
Advertising		6	%	of monthly sales
Delivery expense		2	%	of monthly sales
Sales commissions		5	%	of monthly sales
Rent expense		$5,630		per month
Depreciation		$910		per month
Utilities		$620		per month
Insurance		$520		per month

5.

Interest expense is $2,000 per month. Income taxes are estimated to be 30% of income before income taxes.

Answer 1

Budgeted income statement

	May	June
Sales revenue	960000	960000*1.05 = 1008000
Cost of goods sold	720000	756000
Gross profit	240000	252000
Operating expense
Sales salaries	31500	31500
Advertising	57600	60480
Delivery expense	19200	20160
Sales commission	48000	50400
Rent expense	5630	5630
Depreciation	910	910
Utilities	620	620
Insurance	520	520
Total operating expense	163980	170220
Income from operation	76020	81780
Interest expense	2000	2000
Income before tax	74020	79780
Income tax	22206	23934
Net income	51814	55846