[jdub777]

Sony Company budgets payroll at $3000 per month plus a percentage of monthly sales. The June operating expense budget includes total payroll of %10500 with budgeted sales of 150,000. Sales for July are budgeted at $165000 while purchases of inventory for July are budgeted at $85,000. Depreciation and Insurance for July are estimated at $750 and %500 respectively. Expenses related to purchasing inventory are budgeted at 5% of purchases for the month. The purchase of $3000 in equiptment and $1200 in furniture is expected in July...

The July paroll should be budgeted at what amount?

What are the total operating expenses budgeted for July?

THANKS FOR ALL THE HELP!

Here's another one if you guys get bored...

Caribbean Tool and Die Companys forecasted saled for April, May, June, July are $150000,$225000,$180000, and $210000, respectively. Sales are %50 cash and 50% credit with all accounts recieveables collected in the month following the sale. Cost of goods sold is 60% of sales and ending inventory is maintained at $85000 plus 20% of the following months cost of goods sold. All inventory purchases are paid 20% in the month of purchase and 80% in the following month.

What are budgeted cash payments in June for inventory purchases?

What is the balance of accounts payable on the June 30 budgeted balance sheet?

[Curlyben]

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[jdub777]

I think the answers for

1a... 11250
1b... 16750

2a... 108000
2b... 101760

Can you check these?

[ArcSine]

Your answer for (1a) is good. In (1b) I see you're including the 5% of $85K in the total. Typically, expenses "related to inventory purchases" are not considered operating expenses, but rather are added to the cost of the inventory (to be expensed later via COGS). Check your book carefully to see whether inventory-purchase costs are to be grouped in with operating expenses.

You'll need to have another go at (2a) and (2b). Remember that "cash payments" in a given month will be the sum of 20% of the current month's purchases, plus 80% of the previous month's purchases.

Also, the AP balance at any month-end will be 80% of that month's purchases.

[jdub777]

Ya I was wondering If those purchases were included in the operating expenses... 1b. 20,950...

I still can't figure out 2a and 2b though. I have tried it every which way and can't see to get it.

2a.
A. 86,400
B. 170,280
C. 126,000
D. 108,000 (not this one)

2b.
A.111,600
B. 101,760 (not this one)
C. 89,280
D. 74,880

I tried working out the AP one but 80% of the June purchases is 144,000 and that's not an option.

Can you show me how to set up these equations maybe? Thanks!

[ArcSine]

I think on (1b) you missed my point. Expenses related to purchasing inventory are not considered "operating expenses", nor are purchases of depreciable assets such as equipment and furniture. That just leaves payroll, depreciation, and insurance in the "operating expenses" bucket.

For the Caribbean question, it might be helpful to set up a little chart in which you fill in four amounts for each of the four months:
Beginning inventory;
Purchases;
Cost of Goods Sold;
Ending inventory.

To fill in these amounts you'll need to remember these points:
B + P - C = E
B for any month is just E of the previous month
E for any month is to always be 85,000 + 20% of the next month's C

Start by filling in each month's Cost of Goods Sold C, which is 60% of each month's Sales. With C, you can then determine each month's ending inventory E. You won't be able to calc July's ending inventory since you're not given August sales or COGS, but that's cool... you won't need it.

Then like I said above, each month's ending inventory is also the next month's beginning inventory, so fill in B for Apr through Jun. Finally you can calculate each month's purchases (except for July).

The answers to the questions come from the fact that (a) each month's cash payments are the sum of 20% of that month's purchases, plus 80% of the previous month's purchases; and (b) any month's ending AP balance is 80% of that month's purchases.

[jdub777]

No wait, cost of goods sold is NOT included in Operating Expense so I was right for 1b... 16750

[jdub777]

I think on (1b) you missed my point. Expenses related to purchasing inventory are not considered "operating expenses", nor are purchases of depreciable assets such as equipment and furniture. That just leaves payroll, depreciation, and insurance in the "operating expenses" bucket.

For the Caribbean question, it might be helpful to set up a little chart in which you fill in four amounts for each of the four months:
Beginning inventory;
Purchases;
Cost of Goods Sold;
Ending inventory.

To fill in these amounts you'll need to remember these points:
B + P - C = E
B for any month is just E of the previous month
E for any month is to always be 85,000 + 20% of the next month's C

Start by filling in each month's Cost of Goods Sold C, which is 60% of each month's Sales. With C, you can then determine each month's ending inventory E. You won't be able to calc July's ending inventory since you're not given August sales or COGS, but that's cool...you won't need it.

Then like I said above, each month's ending inventory is also the next month's beginning inventory, so fill in B for Apr through Jun. Finally you can calculate each month's purchases (except for July).

The answers to the questions come from the fact that (a) each month's cash payments are the sum of 20% of that month's purchases, plus 80% of the previous month's purchases; and (b) any month's ending AP balance is 80% of that month's purchases.

First off, Thank you so much for your help. I worked through the problem and my answers were not in the choices. For the budgeted cash payments in June I got 111,600 and for May payments I got 129600. 20% of June plus 80% of May came out to be 126,000... so C for 2a.

For 2b, you said AP is 80% of that months purchases. So 80% of 111600 is 89,280... so C for 2b.

THANK YOU SO MUCH FOR YOUR HELP! I HOPE THESE ANSWERS ARE RIGHT!

[ArcSine]

You are spot-on for 2a and 2b... nice work.

But before you close up shop for the day, revisit 1b. I think the total operating expenses should just be payroll, depreciation, and insurance.

Best of luck with your studies!