The budget committee of Ridder Company collects the following data for its Westwood Store in preparing budgeted income statements for July and August 2022: 

1. The store expects sales for July to be $450,000; for August, $500,000; and for September, $550,000. 

2. It expects the cost of goods sold to be 60% of sales. 

3. Company policy is to maintain ending merchandise inventory at 20% of the following month’s cost of goods sold. 

4. Operating expenses are estimated as follows:

5. Income taxes are estimated to be 30% of the income from operations. 

Instructions 

a. Prepare the merchandise purchases budget, using columns for each month.

b. Prepare a budgeted income statement, using columns for each month. Show details for the cost of goods sold in the statement.

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Sales salaries Advertising Delivery expense Sales commissions $50,000 per month 4% of monthly sales 2% of monthly sales 3% of monthly sales Rent expense Depreciation Utilities Insurance $3,000 per month 700 per month 500 per month 300 per month