Brownsville Novelty Store prepared the following budget information for the month of May:
Sales are budgeted at $360,000. All sales are on account and a provision for bad debts is made for each month at three percent of sales for the month.
Inventory was $84,000 on April 30; an inventory increase of $12,000 is planned for May 31.
All inventory is marked to sell at cost plus 50 percent.
Estimated expense for selling and administrative expenses for the month are $48,000.
Depreciation for May is projected at $6,000.
Brownsville's budgeted operating income for May is:
$55,200
Budgeted operating income = Sales ? CGS ? Estimated selling & administrative expenses ? Depreciation expense ? Estimated bad debts expense = $360,000 ? ($360,000/1.50) ? $48,000 ? $6,000 ? $10,800 = $55,200
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