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Horngren'S Financial And Managerial Accounting
Found in: Page 1256

Short Answer

Preparing an operating budget—sales budget; inventory, purchases and COGS budget; and S&A expense budget Ballard Office Supply’s March 31, 2018, balance sheet follows:

The budget committee of Ballard Office Supply has assembled the following data.

a. Sales in April are expected to be $160,000. Ballard forecasts that monthly sales will increase 2% over April sales in May. June’s sales will increase by 4% over April sales. July sales will increase 20% over April sales.

b. Ballard maintains inventory of $7,000 plus 25% of the cost of goods sold budgeted for the following month. Cost of goods sold equal 50% of sales revenue.

c. Monthly salaries amount to $3,000. Sales commissions equal 5% of sales for that month.

d. Other monthly expenses are as follows: • Rent: $3,400 • Depreciation: $800 • Insurance: $300 • Income tax: $1,500

Requirements

1. Prepare Ballard’s sales budget for April and May 2018. Round all calculations to the nearest dollar.

2. Prepare Ballard’s inventory, purchases, and cost of goods sold budget for April and May.

3. Prepare Ballard’s selling and administrative expense budget for April and May.

  1. Total sales is $323,200
  2. Budgeted purchases are $162,400
  3. Selling and administrative expense $34,000
See the step by step solution

Step by Step Solution

Step 1: Preparation of sales budget

BALLARD OFFICE SUPPLY

Sales Budget

For the first quarter, 2019

April

May

Total

Total budgeted sales

$160,000

$163,200

$323,200

Step 2: Preparation of production budget

BALLARD OFFICE SUPPLY

Inventory, Purchase, and Cost of goods sold Budget

For the first quarter, 2019

April

May

Total

Cost of goods sold

$80,000

$81,600

$161,600

Plus: Desired ending inventory

$27,400

$27,800

$55,200

Total merchandise inventory required

$107,400

$109,400

$216,800

Less: Beginning merchandise inventory

$27,000

$27,400

$54,400

Budgeted purchases

$80,400

$82,000

$162,400

Step 3: Preparation of selling and administrative expense budget 

BALLARD OFFICE SUPPLY

Selling and Administrative Expense Budget

For the first quarter, 2019

April

May

Total

Variable expenses:

Commission (5% of Sales)

$8,000

$8,160

$16,160

Fixed Expenses:

Salaries

$3,000

$3,000

$6,000

Rent

$3,400

$3,400

$6,800

Depreciation

$800

$800

$1,600

Insurance

$300

$300

$600

Income Tax

$1,500

$1,500

$3,000

Total

$17,000

$17,000

$34,000

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