Problem 6 (19 points) FastGoo, a popular discount store, is formulating its budget for the second quarter of 2017. Estimated revenue is $1,495,000 for April, $1,430,000 for May and $1,560,000 for June. While markups on individual items vary, FastGoo's management estimates that the average selling price exceeds the average purchase cost by 25%, in terms of inventory, FastGoo's management hopes to hold ending inventory equal to 30% of the following month's cost of goods sold. In addition to the cost of goods purchased, FastGoo budgets 80 hours of labor, at a cost of $10 per hour, for every $10,000 of revenue. Like many stores, FastGoo tends to adjust the number of checkout clerks, stocking personnel and other labor based on actual sales, which influences the volume of work needed. FastGoo's supervisory staff costs $24,500 per month, and rent and utilities amount to $38,000 per month. All other expenses, including $12,000 for depreciation on storage racks, equal $74,000 per month. Required: a. Calculate inventory to be purchased in May (3 points) b. Prepare budgeted income statement for May (6 points) C. Prepare Cash Budget for May. Assume that FastGoo collects 90% of its revenue in the months of sale and the remainder in the following month. FastGoo pays for 70% of its purchases in the month of purchase and the remainder in the following month. FastGoo also expects to buy and pay for some new display units, costing $24,000, in May. Finally, FastGoo expects to begin May with a cash balance of $25,000. (10 points) Problem 6 (19 points) FastGoo, a popular discount store, is formulating its budget for the second quarter of 2017. Estimated revenue is $1,495,000 for April, $1,430,000 for May and $1,560,000 for June. While markups on individual items vary, FastGoo's management estimates that the average selling price exceeds the average purchase cost by 25%, in terms of inventory, FastGoo's management hopes to hold ending inventory equal to 30% of the following month's cost of goods sold. In addition to the cost of goods purchased, FastGoo budgets 80 hours of labor, at a cost of $10 per hour, for every $10,000 of revenue. Like many stores, FastGoo tends to adjust the number of checkout clerks, stocking personnel and other labor based on actual sales, which influences the volume of work needed. FastGoo's supervisory staff costs $24,500 per month, and rent and utilities amount to $38,000 per month. All other expenses, including $12,000 for depreciation on storage racks, equal $74,000 per month. Required: a. Calculate inventory to be purchased in May (3 points) b. Prepare budgeted income statement for May (6 points) C. Prepare Cash Budget for May. Assume that FastGoo collects 90% of its revenue in the months of sale and the remainder in the following month. FastGoo pays for 70% of its purchases in the month of purchase and the remainder in the following month. FastGoo also expects to buy and pay for some new display units, costing $24,000, in May. Finally, FastGoo expects to begin May with a cash balance of $25,000. (10 points)
