Daves Convenience Stores income statement and balance sheet reported the following. The business is organized as a proprietorship, so it pays no corporate income tax. The owner is budgeting for 2010. He expects sales and cost of goods sold to increase by 9%. To meet customer demand, ending inventory will need to be $78,000 at December 31, 2010. The owner hopes to earn a net income of $156,000 next year.

Dave s Convenience Stores

Income Statement

Year Ended December 31, 2009

Sales...................................$964,000

Cost of sales....................... 722,000

Gross profit........................ 242,000

Operating expenses............. 110,000

Net income.........................$132,000

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 2010.

2. Prepare the stores budgeted income statement for 2010 to reach the target net income of $156,000. To reach this goal, operating expenses must decrease by $2,220.