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:

Expected monthly sales for April, May, June, and July are $280,000, $250,000, $370,000, and $150,000, respectively.

Cost of goods sold is 30 percent of expected sales.

CGC’s desired ending inventory is 25 percent of the following month’s cost of goods sold.

Monthly operating expenses are estimated to be:

Salaries: $36,000

Delivery expense: 5 percent of monthly sales

Rent expense on the warehouse: $7,500

Utilities: $1,500

Insurance: $150

Other expenses: $250

Required:
1. Compute the budgeted cost of purchases for each month in the second quarter.



2. Complete the budgeted income statement for each month in the second quarter.

Answer 1

Budgeted cost of purchase

	April	May	June
Cost of goods sold	84000	75000	111000
Add: Desired ending inventory	18750	27750	11250
Total needs	102750	102750	122250
Less: Beginning inventory	-21000	-18750	-27750
Budgeted purchase	81750	84000	94500

Budgeted income statement

	April	May	June
Sales	280000	250000	370000
Cost of goods sold	84000	75000	111000
Gross profit	196000	175000	259000
Operating expense
Salaries	36000	36000	36000
Delivery expense	14000	12500	18500
Rent	7500	7500	7500
Utilities	1500	1500	1500
Insurance	150	150	150
Other expense	250	250	250
Total operating expense	59400	57900	63900
Operating income	136600	117100	195100