The budget committee of Widner Company collects the following data for its West- wood Store in preparing budgeted income statements for July and August 2014.
1. Expected sales: July $400,000, August $450,000, September $500,000.
2. Cost of goods sold is expected to be 65% of sales.
3. Company policy is to maintain ending merchandise inventory at 15% of the following month's cost of goods sold.
4. Operating expenses are estimated to be:
Sales salaries $50,000 per month
Advertising 5% of monthly sales Delivery expense 2% of monthly sales Sales commissions 4% of monthly sales Rent expense $3,000 per month
Depreciation $700 per month
Utilities $500 per month
Insurance $300 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 the details of cost of goods sold in the statements.