Can you help me solve Self-Test problem 3.1, 3.4, and 3.5?

40 BUDGETING For June it is necessary to use estimated sales for July. July cost of sales is ($46 800 x 50%) $23 400. So the closing inventory for June is $23 400 x 120% = $28080. Step 4 Prepare the purchases budget. Oram & Co. Purchases budget for the three months ending 30 June April May June Quarter S $ S Cost of sales 25 800 22 800 24 600 73 200 add Ending inventory 27 360 29 520 28 080 28 080 Total requirements 53 160 52 320 52 680 101 280 less Beginning inventory 30 960 27 360 29 520 30 960 To be purchased 22 200 24 960 23 160 70 320 Note that it is necessary to add the cost of sales to the ending inventory to establish the total requirements for the business. Some of these requirements are already on hand in the form of beginning inventory; the remainder represents the amount still to be purchased. Also note that the inventory figures in the column headed 'Quarter" are the beginning and ending inventory figures for the quarter, not the totals of the respective rows. The 'Quarter' column and the 'To be purchased" row must cross-balance. Self-test problem 3.1 Rundle Lid has estimated sales for January to April as: January 150 000 February 180 000 March 120 000 April 165 000 The mark-up on cost is 50% and management requires that opening stock be 90% of sales (at cost) each month. Required Prepare a purchases budget for the three months ending 31 March. You should now be able to do Questions 3.1 to 3.3.Budgeting, Third Idtion CHAPTER D . OPERATING BUDGETS FOR MERCHANDISING AND SERVICE ORGANISATIONS Purchases budget in units To enable businesses to plan their ordering requirements it may be desirable to calculate the number of units to be purchased. Consider Patrician Industries. Future sales, in units, have been estimated at: Units January February 60 000 March 55 000 65 000 April 62 000 Management requires that beginning inventory represents 80% of that month's sales. Selling price is $15 per unit. Purchase price is $10 per unit. desired inventories. Before preparing the purchases budget (in units) it is necessary to calculate the Calculation of inventories Units 1 January (80% x 60 000) 48 000 1 February (60% x 55 000) 44 000 1 March (80% x 65 000) 52 000 1 April (80% x 62 000] 49 000 Patrician Industries' purchases budget for the three months ending 31 March can now be prepared. Patrician Industries Purchases budget for the quarter ending 31 March January February March Quarter Sales (units) 60 000 55 000 65 000 180 000 add Ending inventory (units) 44 000 52 000 49 600 49 600 Total requirements (units) 104 000 107 000 114 600 229 600 less Beginning inventory (units) 48 000 44 000 52 000 48 000 Purchases (in units) 56 000 63 000 62 GO0 181 600 Cost per unit x $10 x $10 x $10 * $10 Cost of purchases $560 000 $630 000 $626 000 $1 816 000 The dollar value of beginning inventory, cost of goods sold, ending inventory and total requirements can all be found by multiplying each unit figure by the purchase price per unit.Forecasting and Budgeting BUDGETING Using information from Oram & Co.'s purchases budget compiled earlier, the cost of goods sold budget is as shown below: Oram & Co. Cost of goods sold budget for the 3 months ending 30 June April May June Quarter $ Beginning inventory 30 960 27 360 29 520 30 960 Purchases 22 200 24 960 23 160 70 320 Goods available for sale 53 160 52 320 52 080 101 280 less Ending inventory 27 360 29 520 28 080 28 080 Cost of goods sold 25 800 22 800 24 600 73 200 Self-test problem 3.4 Refer to Self-test problem 3.1. Required Prepare a cost of goods sold budget for the three months ending 31 March. You should now be able to do Questions 3.6 to 3.8. Budgets for operating expenses Recall from earlier studies that operating expenses in the income statement were categorised as marketing for selling and distribution), administrative and financial. It is necessary to prepare budgets for each of these categories so that the forecasted amounts of these expenses can be included in the budgeted income statement. . Marketing expenses are those expenses that relate to attracting sales, making sales and delivering products. Examples of expenses for this category are advertising, selling commission and cartage outward. Administration expenses are those expenses that relate to the general office and the overall administration of the organisation. Expenses typical of this category are salaries of executives, office staff wages, stationery, rent and/or rates of office premises and depreciation of office furniture and equipment. Financial expenses relate to financial aspects of the business. Typical expenses included here are wages and salaries for credit department staff, bad debts, interest on loans and discount allowed.Budgeting, Thind Edition CHAPTER 3 . OPERATING BUDGETS FOR MERCHANDISING AND SERVICE ORGANISATIONS Expense details for Oram & Co. are listed below. This information will be used to illustrate the marketing expenses budget, the administration expenses budget and the financial expenses budget for the three months ending 30 June. Expense details Casual salesperson's wages Sales commissions $28 800 pa apportioned equally each month 5% of sales Advertising 2% of sales Stationery Telephone $720 pa apportioned equally each month $1 440 pa apportioned equally each month Superannuateion 9% of total payroll Workers compensation insurance 8% of total payroll Rent $25 920 pa apportioned equally each month Accountancy fees $2 160 pa apportioned equally each month Depreciation (straight line method Motor vehicle (used for deliveries) 20% pa on cost of $54 000 Shop fittings 15% pa on cost of $36 000 Office furniture and equipment 15% pa on cost of $19 200 Interest on loan April $720 May $704 June $688 Bank charges $576 pa apportioned equally each month Marketing expenses budget It is necessary to identify the expenses that should be included in this budget. For Oram & Co., casual salesperson's wages, sales commissions, advertising, depreciation on shop fittings and depreciation on delivery vehicle are all obvious. In this instance superannuateon and workers compensation insurance are included as the entire payroll relates to sales staff. This will not always be the case. The following table indicates the amount applicable for each of these expenses and their calculations for the months of April, May and June. Expense April May June Salesperson's wages $28 800/12 = $2 400 $2 400 $2 400 Sales commissions 5% x $51 600 5% x $45 600 5% x $49 200 = $2 580 - $2 280 - $2 460 Advertising 2% x $51 600 2X x $45 600 2% x $49 200 $1 032 - $912 = $984 Superannuaten ($2 400 + $2 580) ($2 400 + $2 280) ($2 400 + $2 460) x 9% = $448 x9% = $421 x 9% = $437 Workers compensation ($2 400 + $2 580) ($2 400 + $2 280) ($2 400 + $2 460) insurance x BX = $398 * 8% = $374 x 8% = $389 continuedExpense April May June Depreciation on 20% x $54 000/12 delivery vehicle = $900 $900 $900 Depreciation on 15% x $36 000/12 shop fittings - 1450 $450 $450 The marketing expenses budget for Oram & Co. is shown below: Oram & Co. Marketing expenses budget for the three months ending 30 June April May June Quarter 5 S Salesperson's wages 2 400 2 400 2 400 7 200 Sales commissions 2 580 2 280 2 460 7 320 Advertising 1 032 912 984 2 928 Superannuition 448 421 437 1 306 Workers compensation insurance 398 374 1 161 Depreciation: Delivery van 900 900 2 700 Shop fittings 450 450 450 1 350 Total marketing expenses 8 208 7 737 8 020 23 965 Self-test problem 3.5 Refer to Self-test problem 3.1. Rundle Lid provides you with the following information relating to estimated expenses. Expense details Sales representatives" salaries $72 000 pa apportioned equally each month Cartage outwards 5%% of sales Advertising 3% of sales General salaries and wages $144 000 pa apportioned equally each month Audit fees $2 400 pa apportioned equally each month Payroll on-costs (treated as an administration expense) 15% of total payroll Rent $43 200 pa apportioned equally each month Depreciation $27 600 pa apportioned equally each month Telephone $1 800 pa apportioned equally each month Stationery $1 800 pa apportioned equally each month Interest on loan January-$830 February-$820 March-1810 Bank charges $720 pa apportioned equally each monthCHAPTER 1 . OPERATING BUDGETS FOR MERCHANDISING AND SERVICE ORGANISATIONS Required Prepare the marketing expenses budget for the three months ending 31 March. You should now be able to do Question 3.9. Administration expenses budget The procedure adopted to prepare the marketing expenses budget will now be used to prepare the administration expenses budget. Identify administration expenses. In the Oram & Co. example these are stationery, telephone, rent, accountancy fees, and depreciation on office furniture and equipment. Step 2 Calculate the monthly amount for each expense. Stationery $720/12 100 per month Telephone $1 440/12 $120 per month Rent $25 920/12 $2 160 per month Accountancy lees $2 160/12 . $180 per month Depreciation Office furniture and equipment 15% x $19 200/12 = 1240 per month Stop J Prepare the administration expenses budget. Oram & Co. Administration expenses budget for the three months ending 30 June April June Quarter Stationery 180 Telephone 120 120 120 360 Rent 2 160 2:160 2 160 6 480 Accountancy lots 160 5:40 Depreciationc Office furniture and equipment 240 340 720 Total administration expenses 2 760 2 760 2 760 8 280