Chester€™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 5%. To meet customer demand, ending inventory will need to be $83,000 at December 31, 2012. Th e owner hopes to earn a net income of $158,000 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 $158,000. To reach this goal, operating expenses must decrease by$11,850.

Transcribed Image Text:

Chesters Convenience Stores Income Statement Year Ended December 31, 2011 Sales Cost of sales Gross profit Operating expenses Net income $964,000 721,000 243,000 109.000 $134,000 Chester's Convenience Stores Balance Sheet December 31, 2011 Assets Liabilities and Capital Cash Inventories Land and 37,000 Accounts payable 64,000 Note payable S 32,000 185,000 217,000 157,000 Total liabilities buildings, net 273,000 Owner, capital Total liabilities Total assets $374,000 n capital $374,000