Sanjanas Sweet Shoppe operates on the boardwalk of a New England coastal town. The store only opens for the summer season and the business is heavily dependent on the weather and the economy in addition to new competition. Sanjana Sweet, the owner, prepares a budget each year after reading long-term weather forecasts and estimates of summer tourism. The budget is a first step in planning whether she will need any loans and whether she needs to consider adjustments to store staffing. Based on expertise and experience, she develops the following.

	Gross Margin per Customer
Scenario	(Price Cost of Goods)			Number of Customers
Good		$7.0		50,000
Fair		6.0		40,000
Poor		1.9		35,000

Sanjana assumes, for simplicity, that the gross margin and the estimated number of customers are independent. Thus, she has nine possible scenarios. In addition to the cost of the products sold, Sanjana estimates staffing costs to be $52,000 plus $2 for every customer in excess of 40,000. The marketing and administrative costs are estimated to be $13,900 plus 3 percent of the gross margin.

Required:

Prepare an analysis of the possible operating income for Sanjana similar to that in Exhibit 13.15. What is the range of operating incomes?

Brighton, Inc., manufactures kitchen tiles. The company recently expanded, and the controller believes that it will need to borrow cash to continue operations. It began negotiating for a one-month bank loan of $600,000 starting May 1. The bank would charge interest at the rate of 1.00 percent per month and require the company to repay interest and principal on May 31. In considering the loan, the bank requested a projected income statement and cash budget for May.

The following information is available:

• The company budgeted sales at 600,000 units per month in April, June, and July and at 500,000 units in May. The selling price is $4 per unit.
• The inventory of finished goods on April 1 was 150,000 units. The finished goods inventory at the end of each month equals 25 percent of sales anticipated for the following month. There is no work in process.
• The inventory of raw materials on April 1 was 71,875 pounds. At the end of each month, the raw materials inventory equals no less than 50 percent of production requirements for the following month. The company purchases materials in quantities of 70,500 pounds per shipment.
• Selling expenses are 10 percent of gross sales. Administrative expenses, which include depreciation of $2,000 per month on office furniture and fixtures, total $155,000 per month.
• The manufacturing budget for tiles, based on normal production of 500,000 units per month, follows:

Materials (0.25 pound per tile, 125,000 pounds, $4 per pound)	$	500,000
Labor		420,000
Variable overhead		200,000
Fixed overhead (includes depreciation of $190,000)		380,000
Total	$	1,500,000

Required:

a-1. Prepare schedules computing inventory budgets by months for production in units for April, May, and June. a-2. Prepare schedules computing inventory budgets by months for raw materials purchases in pounds for April and May.

b. Prepare a projected income statement for May. Cost of goods sold should equal the variable manufacturing cost per unit times the number of units sold plus the total fixed manufacturing cost budgeted for the period. When calculating net sales assume cash discounts of 1 percent and bad debt expense of 0.50 percent.

Gross Margin Operating Costs Marketing & Admin Gross Margin $ 1.9 $ 6.0 Operating Profit (Loss) $ 0 $ 0 Poor Fair Good $ $ 0 Poor $ Number of Customers 35,000 35,000 35,000 40,000 40,000 40,000 50,000 50,000 50,000 $ 7.0 1.9 6.0 7.0 0 Fair $ $ 0 Good $ $ 0 Poor $ 1.9 $ 0 0 Fair Good 6.0 7.0 $ $ Complete this question by entering your answers in the tabs below. Req A1 Req AZ Reg B Prepare schedules computing inventory budgets by months for production in units for April, May, and June. BRIGHTON, INC. Schedule Computing Production Budget (Units) For April, May, and June April May June Total needs 0 0 0 Budgeted production - Units 0 0 0 Complete this question by entering your answers in the tabs below. Req A1 Reg A2 Reg B Prepare schedules computing inventory budgets by months for raw materials purchases in pounds for April and Ma Schedule Computing Raw Materials Inventory Purchase Budget (Pounds) For April and May April May Total pound needs 0 0 0 0 Balance required to purchase Budgeted purchases - Pounds BRIGHTON, INC. Projected Income Statement For the Month of May 0 0 $ Net Sales Cost of Sales: 0 0 Expenses: 0 $ 0