Question 1

Bach Distributors is a wholesaler of grocery items. As the accountant, you have been asked to develop the operating budgets. The budget must be prepared taking into consideration the following information:

Sales

1. Sales in units are:

May (actual) 8,260

June (actual) 8,470

July 8,330

August 7,980

September 8,400

October 8,540

2. Average selling price is $17 per unit.

3. Each months sales will be invoiced on the last day of that month.

4. All sales are on credit.

5. Accounts receivable pay 80% in the month following sale and are allowed a 2% discount;

17% in the second month after sale; and,

3% are uncollectible.

6. Bad debts are recognised in the month of sale.

Purchases

1. Management requires that each months units of ending inventory be equal to the following months unit sales

2. Average purchase price is $11 per unit.

3. All purchases are on credit.

4. As from July 1, accounts payable will be paid 55% in the month of purchase and receive a 3% discounts; and,

45% in the month after purchase.

Operating Expenses

1. Monthly variable expenses, paid in the month they are incurred, will be:

Marketing 7% of sales

Administration 6.5% of sales

Financial (excluding bad debts and discount allowed) 1.5% of sales

2. Monthly fixed expenses will be:

Marketing--depreciation on delivery vehicles $800 per month

Administration--depreciation on furniture and equipment $350 per month

Additional Information

Commission of $1,200 will be received in August.

Required

For the three months ending September 30, prepare the following budgets, showing monthly details where appropriate. Calculations may be rounded to the nearest dollar.

(a) Sales budget.

(b) Purchases budget.

(c) Cost of goods sold budget.

(d) Marketing expenses budget.

(e) Administration expenses budget.

(f) Financial expenses budget.

(g) Budgeted Income Statement, in summary format.