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The budget committee of Suppar Company collects the following data for its San Miguel Store in preparing budgeted income statements for May and June 2017.
1. Sales for May are expected to be $800,000. 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
$35,000 per month
Advertising
6% of monthly sales
Delivery expense
2% of monthly sales
Sales commissions
5% of monthly sales
Rent expense
$5,000 per month
Depreciation
$800 per month
Utilities
$600 per month
Insurance
$500 per month
5. Interest expense is $2,000 per month. Income taxes are estimated to be 30% of income before income taxes.
Instructions
1. Prepare the merchandise purchases budget for each month in columnar form.
(a) Purchases:
May $603,000
June $633,150
2. Prepare budgeted multiple-step income statements for each month in columnar form. Show in the statements the details of cost of goods sold.
(b) Net income:
May $36,470
June $39,830
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