The budget committee of Litwin Company collects the following data for its San Miguel Store in preparing budgeted income statements for May and June 2013.
1. Sales for May are expected to be $800,000. Sales in June and July are expected to be 10% 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 20% of the following month’s cost of goods sold.
4. Operating expenses are estimated to be:
| Sales salaries | $30,000 per month |
| Advertising | 5% of monthly sales |
| Delivery expense | 3% of monthly sales |
| Sales commissions | 4% of monthly sales |
| Rent expense | $5,000 per month |
| Depreciation | $800 per month |
| Utilities | $600 per month |
| Insurance | $500 per month |
5. Income taxes are estimated to be 30% of income from operations.
Instructions
(a) Prepare the merchandise purchases budget for each month in columnar form.
(b) Prepare budgeted income statements for each month in columnar form. Show in the statements the details of cost of goods sold.
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