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

The budget committee of Burton Office Supply has assembled the following data: a. Sales in April are expected to be \(200,000. Burton forecasts that monthly sales will increase 2% over April sales in May. June’s sales will increase by 4% over April sales. July sales will increase 20% over April sales. b. Burton maintains inventory of \)15,000 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 \(7,000. Sales commissions equal 5% of sales for that month. d. Other monthly expenses are as follows: • Rent: \)2,000 • Depreciation: \(200 • Insurance: \)100 • Income tax: $2,200

Requirements

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

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

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

Step by step solution

01

Preparation of sales budget

BURTON OFFICE SUPPLY Sales Budget For the first quarter, 2019
	April	May	Total
Total budgeted sales	$200,000	$204,000	$404,000

02

 Step 2: Preparation of production budget

BURTON OFFICE SUPPLY Inventory, Purchase, and Cost of goods sold Budget For the first quarter, 2019
	April	May	Total
Cost of goods sold	$100,000	$102,000	$202,000
Plus: Desired ending inventory	$40,500	$41,000	$81,500
Total merchandise inventory required	$140,500	$143,000	$283,500
Less: Beginning merchandise inventory	$40,000	$40,500	$80,500
Budgeted purchases	$100,500	$102,500	$203,000

03

Preparation of selling and administrative expense budget 

BURTON OFFICE SUPPLY Selling and Administrative Expense Budget For the first quarter, 2019
	April	May	Total
Variable expenses:
Commission (5% of Sales)	$10,000	$10,200	$20,200
Fixed Expenses:
Salaries	$7,000	$7,000	$14,000
Rent	$2,000	$2,000	$4,000

Depreciation	$200	$200	$400
Insurance	$100	$100	$200
Income Tax	$2,200	$2,200	$4,400
Total	$21,500	$21,700	$41,200

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