Chapter 9, Problem 9.35AE

Cost of goods sold, inventory, and purchases budget (Learning Objectives 3 & 4)

Kent Corner Shoppe is a local convenience store with the following information:

• October sales were $250,000.
• Sales are projected to go up by 12% in November and another 30% in December and then return to the October level in January.
• 20% of sales are made in cash, while the remaining 80% are paid by credit or debit cards. The credit card companies and banks (debit card issuers) charge a 2% transaction fee and deposit the net amount (sales price less the transaction fee) in the store’s bank account daily.
• Kent Corner Shoppe’s gross profit is 25% of its sales revenue.
• For the next several months, the store wants to maintain an ending merchandise inventory equal to $15,000 + 15% of the next month’s cost of goods sold. The September 30 inventory was $43,125.
• Expected monthly operating expenses include:
• Wages of store workers are $9,200 per month
• Utilities expense of $1,000 in November and $1,500 in December
• Property tax expense of $2,000 per month
• Property and liability insurance expense of $500 per month
• Depreciation expense of $6,500 per month
• Transactions fees, as stated above, are 2% of credit and debit card sales

Prepare the following budgets for November and December:

1. 1. Sales budget
2. 2. Cost of goods sold, inventory and purchases budget
3. 3. Operating expense budget
4. 4. Budgeted income statement