E8-20 (Algo) Preparing a Merchandise Purchases Budget and a Budgeted Income Statement [LO 8-3h, 8-5]

Citrus Girl Company (CGC) purchases quality citrus produce from local growers and sells the produce via the Internet across the United States. To keep costs down, CGC maintains a warehouse, but no showroom or retail sales outlets. CGC has the following information for the second quarter of the year:

1. Expected monthly sales for April, May, June, and July are $230,000, $200,000, $320,000, and $100,000, respectively.
2. Cost of goods sold is 35 percent of expected sales.
3. CGCs desired ending inventory is 25 percent of the following months cost of goods sold.
4. Monthly operating expenses are estimated to be:

• Salaries: $31,000
• Delivery expense: 5 percent of monthly sales
• Rent expense on the warehouse: $5,000
• Utilities: $1,000
• Insurance: $150
• Other expenses: $250

Required:

1. Compute the budgeted cost of purchases for each month in the second quarter.

2. Complete the budgeted income statement for each month in the second quarter.

April May June Total cost of budgeted purchases CITRUS GIRL COMPANY Budgeted Income Statement For the Month Ending April 30 May 31 June 30 Budgeted Gross Margin Budgeted Net Operating Income