Business Limited prepares quarterly budgets. The following information relates to the March quarter of 2020.

Sales and Purchases data

                                                      Sales                            Purchases

                                                        ($)                                        ($)

November 2019 (actual)           60 000                              25 000

December 2019 (actual)          100 000                             35 000

January 2020 (budgeted)          80 000                              15 000

February 2020 (budgeted)       50 000                               5 000

March 2020 (budgeted)             40 000                              7 500

Goods are sold at an average mark-up of 300%.

Sales are collected 40% in the month of sale, 50% the second month after sale and the balance the third month after sale.

Inventory suppliers offer credit terms of 60 days but offers a 2% discount if accounts are settled before 30 days. Business Ltd aims to take advantage of the discounts on offer.

Other data

Employee costs consist of:

 Salaries currently of $10,000 per month with a 5% increase to take effect in March.

 On-costs are 20%, half of which is paid into an industry superannuation fund each month and the other 50% relating to leave entitlements which accrue in provisions.

Occupancy expenses consist of:

 Utilities charges of $3,000 payable each month.

 Rent which is currently $5 000 per month payable in the final week of each preceding month. Under the lease agreement, the monthly rent will increase by 20% from March.

Selling expenses consist of:

 Sales commissions – paid to sales staff at the rate of 2.5% of the previous month’s sales.

 Advertising – an amount of $2,000 is still to run in the final two months of the current advertising contract. A new 6-month contract for $9,000 will be paid in March commencing in the same month.

Administrative expenses:

 Costs of $1,050 are paid per month.

Plant & equipment:

 Equipment is carried at cost less accumulated depreciation and has a gross value of $210,000 at 31 December 2018.

 Depreciation is charged at 20% on a straight-line basis assuming no residual value

 New equipment will be delivered ready for use on February 1 at a cost of $60,000 payable on delivery.

Investments:

 A fixed term deposit of $25,000 attracts interest of 8% p.a. receivable at the end of each quarter.

Borrowings:

 Loan repayments (including interest) are $4 000 per month.

 Interest expense for the quarter is expected to be $3 000.

Income tax:

 The corporate tax rate is 30%.

 Tax instalments are paid each quarter based on the company’s own estimate of quarterly pre-tax profit which is $40,000.

Dividends:

 Dividends of $15,000 will be paid in January.

Cash on hand

 Cash on hand at 31 December 2019 is $10,000.

Calculate the cost of sales for budgeted Profit or Loss Variance Report for the quarter ended 31 March 2020

Answer rating: 100% (QA)

To calculate the cost of sales we first need to determine the cost of goods sold COGS for each month COGS for November 2019 actual 25000 1 300 6250 COGS for December 2019 actual 35000 1 300 8750 COGS ... View the full answer