Warshaw Company budgets payroll at $3,600 per month plus a percentage of monthly sales. The June operating expense budget includes total payroll of $13,200 with budgeted sales of $160,000. Sales for July are budgeted at $180,000 while purchases of inventory for July are budgeted at $95,000. Depreciation and insurance for July are estimated at $1,000 and $600, respectively. Office and administrative expenses related to purchasing inventory are budgeted at 10% of purchases for the month. The purchase of $2,500 in equipment and $1,500 in furniture is expected in July. The total operating expenses budgeted for July are

Question

Quizplus · Accepted Answer

- Payroll: $3,600 (fixed) + 2% of sales in July = $3,600 + $3,600 x 2% x $180,000 = $3,600 + $3,600 x 0.02 x $180,000 = $10,200
- Purchases: $95,000
- Office and administrative expenses related to purchasing inventory: 10% of purchases = $9,500
- Depreciation: $1,000
- Insurance: $600
- Equipment: $2,500
- Furniture: $1,500

Total operating expenses budgeted for July = Payroll + Purchases + Office and administrative expenses related to purchasing inventory + Depreciation + Insurance + Equipment + Furniture
= $10,200 + $95,000 + $9,500 + $1,000 + $600 + $2,500 + $1,500
= $120,800

Therefore, the best choice is C ($25,500).

Warshaw Company Budgets Payroll at $3,600 Per Month Plus a Percentage