Question

Jasper Fruits Corporation wholesales peaches and oranges. Barbara Jasper is working with the company’s accountant to prepare next year’s budget. Ms. Jasper estimates that sales will increase 5 percent for peaches and 10 percent for oranges. The current year’s sales revenue data follow.

	First Quarter			Second Quarter			Third Quarter			Fourth Quarter			Total
Peaches	$	223,000		$	243,000		$	303,000		$	243,000		$	1,012,000
Oranges		403,000			453,000			573,000			383,000			1,812,000
Total	$	626,000		$	696,000		$	876,000		$	626,000		$	2,824,000

Based on the company’s past experience, cost of goods sold is usually 65 percent of sales revenue. Company policy is to keep 10 percent of the next period’s estimated cost of goods sold as the current period’s ending inventory. (Hint: Use the cost of goods sold for the first quarter to determine the beginning inventory for the first quarter.)

Required

1. Prepare the company’s sales budget for the next year for each quarter by individual product.

2. If the selling and administrative expenses are estimated to be $700,000, prepare the company’s budgeted annual income statement.

3. Ms. Jasper estimates next year’s ending inventory will be $35,500 for peaches and $57,400 for oranges. Prepare the company’s inventory purchases budgets for the next year, showing quarterly figures by product.

Answer 1

a)	Sales budget for next year for each quarter
					(Amount in $)
	Quarter I	Quarter II	Quarter III	Quarter IV	Total
Peaches	234,150	255,150	318,150	255,150	1,062,600
Oranges	443,300	498,300	630,300	421,300	1,993,200
Total	677,450	753,450	948,450	676,450	3,055,800

b)	Budgeted Annual Income Statement
	Particulars	(Amount in $)
a	Total Estimated Sales	3,055,800
b	Cost of Goods Sold	1,986,270
	(65% of sales)
c	Gross Margin (a-b)	1,069,530
d	Selling and administrative expenses	700,000
e	Budgeted Income	369,530

c)	Inventory Purchase budget for next year
					(Amount in $)
	Peaches	Quarter I	Quarter II	Quarter III	Quarter IV
a	Estimated Sales	234,150	255,150	318,150	255,150
b	Ending Inventory (10% of next quarter sales)	25,515	31,815	25,515	35,500
c	Opening Inventory (10% of same quarter sales)	23,415	25,515	31,815	25,515
d	Purchases (a+b-c)	236,250	261,450	311,850	265,135
	Oranges	Quarter I	Quarter II	Quarter III	Quarter IV
a	Estimated Sales	443,300	498,300	630,300	421,300
b	Ending Inventory (10% of next quarter sales)	49,830	63,030	42,130	57,400
c	Opening Inventory (10% of same quarter sales)	44,330	49,830	63,030	42,130
d	Purchases (a+b-c)	448,800	511,500	609,400	436,570