Eddie€™s Convenience Stores€™ income statement for the year ended December 31, 2011 and its balance sheet as of December 31, 2011 reported the following. The business is organized as a proprietorship, so it pays no corporate income tax. The owner is budgeting for 2012. He expects sales and cost of goods sold to increase by 10%. To meet customer demand, ending inventory will need to be $81,000 at December 31, 2012. The owner hopes to earn a net income of $152,000 next year.

Requirements
1. One of the most important decisions a manager makes is the amount of inventory to purchase. Show how to determine the amount of inventory to purchase in 2012.
2. Prepare the store€™s budgeted income statement for 2012 to reach the target net income of $152,000. To reach this goal, operating expenses must decrease by$3,200.

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Eddie's Convenience Stores Income Statement Year Ended December 31,2011 Sales Cost of sales Gross profit Operating expenses S962,000 724,000 238,000 113,000 $125,000 Net income Eddie's Convenience Stores Balance Sheet December 31, 2011 Assets Liabilities and Capital Cash Inventories Land and 44,000 Accounts payable 69,000 Note payable $ 28,000 188,000 216,000 163,000 Total liabilities 266,000 Owner, capital Total liabilities buildings, net Total assets 5379,000 and capital $379,000