Question

Preparing an operating budget—sales budget; inventory, purchases and COGS budget; and S&A expense budget Ballard Office Supply’s March 31, 2018, balance sheet follows:

The budget committee of Ballard Office Supply has assembled the following data.

a. Sales in April are expected to be \(160,000. Ballard forecasts that monthly sales will increase 2% over April sales in May. June’s sales will increase by 4% over April sales. July sales will increase 20% over April sales.

b. Ballard maintains inventory of \)7,000 plus 25% of the cost of goods sold budgeted for the following month. Cost of goods sold equal 50% of sales revenue.

c. Monthly salaries amount to \(3,000. Sales commissions equal 5% of sales for that month.

d. Other monthly expenses are as follows: • Rent: \)3,400 • Depreciation: \(800 • Insurance: \)300 • Income tax: $1,500

Requirements

1. Prepare Ballard’s sales budget for April and May 2018. Round all calculations to the nearest dollar.

2. Prepare Ballard’s inventory, purchases, and cost of goods sold budget for April and May.

3. Prepare Ballard’s selling and administrative expense budget for April and May.

Short answer

1. Total sales is$323,200
2. Budgeted purchases are $162,400
3. Selling and administrative expense $34,000

Step-by-step solution

Preparation of sales budget

BALLARD OFFICE SUPPLY Sales Budget For the first quarter, 2019
	April	May	Total
Total budgeted sales	$160,000	$163,200	$323,200

Preparation of production budget

BALLARD OFFICE SUPPLY Inventory, Purchase, and Cost of goods sold Budget For the first quarter, 2019
	April	May	Total
Cost of goods sold	$80,000	$81,600	$161,600
Plus: Desired ending inventory	$27,400	$27,800	$55,200
Total merchandise inventory required	$107,400	$109,400	$216,800
Less: Beginning merchandise inventory	$27,000	$27,400	$54,400
Budgeted purchases	$80,400	$82,000	$162,400

Preparation of selling and administrative expense budget 

BALLARD OFFICE SUPPLY Selling and Administrative Expense Budget For the first quarter, 2019
	April	May	Total
Variable expenses:
Commission (5% of Sales)	$8,000	$8,160	$16,160
Fixed Expenses:
Salaries	$3,000	$3,000	$6,000
Rent	$3,400	$3,400	$6,800
Depreciation	$800	$800	$1,600
Insurance	$300	$300	$600
Income Tax	$1,500	$1,500	$3,000
Total	$17,000	$17,000	$34,000