P6-67A. (Learning Objective 3: Determining the amount of inventory to purchase)

Grammy’s Convenience Store’s Income Statement and Balance Sheet reported the following:

The business is organized as a proprietorship, so it pays no corporate income tax. The owner is budgeting for 20X6. He expects sales and cost of goods sold to increase by 8%. To meet customer demand, ending inventory will need to be $78,000 at December 31, 20X6. The owner hopes to earn a net income of $158,000 next year.
Requirements 1. One of the most important decisions a manager makes is the amount of inventory to purchase.
Show how to determine the amount of inventory to purchase in 20X6.
2. Prepare the store’s budgeted Income Statement for 20X6 to reach the target net income of $158,000. To reach this goal, operating expenses must decrease by $16,040.

Transcribed Image Text:

A1 Grammy's Convenience Stores Income Statement 1 Year Ended December 31, 20X5 A1 4 1 2 Sales $ 957,000 2 Assets 3 Cost of sales 720,000 3 Cash 4 Gross profit 237,000 4 Inventories 5 Operating expenses 114,000 5 Land and buildings, net 6 Net income $ 123,000 6 7 7 Total assets 8 Grammy's Convenience Stores Balance Sheet December 31, 20X5 Liabilities $ 44,000 Accounts payable 68,000 Note payable 273,000 Total liabilities Owner, capital $ 385,000 Total liabilities and capital $ 31,000 187,000 218,000 167,000 $385,000