Question 1.

juanma Party Supplies Co. is creating its budget for the second quarter of the upcoming year.

Revenue estimates are $1,495,000 for April, $1,430,000 for May, and $1,560,000 for June. While markups on individual items vary, the company controller estimates that the average selling price exceeds the average purchase cost by 25%. In terms of inventory, Juanma tries to maintain merchandise on hand at the end of one month equal to 20% of the cost of goods sold for the next month.

In addition to the cost of goods purchased, Juanma budgets 80 hours of labor, at a cost of $10 per hour, for every $10,000 of revenue. Many stores adjust the number of checkout clerks, stock people, and other labor costs based on actual sales, which influences the volume of workers needed. Juanma s supervisory staff costs $25,500 per month and rent and utilities amount to $38,000 per month. All other expenses, including $12,000 for depreciation on store fixtures, amount to $74,000 per month.

Prepare the master budget information for Maythat means:

1) Purchases budget for May (Hint: for the May purchases budget, you will have to use the CGS baby formula to back into amounts for beginning inventory)

2) Direct labor budget for May

3) Budgeted income statement for May

4) Budget cash budget, using these assumptions in addition to what you computed above:

-Juanma collects 90% of its revenue in the month of sale and the balance in the following month.

-Juanma pays for 75% of its purchases in the month of purchase and the balance in the following month

-In May, Juanma intends to purchase and pay for new display units costing 24,000.

-Beginning cash balance for May is forecasted to be $25,000. Normally Juanma maintains a cash balance of $25,000.