Example 31
the Information Below Is Used for the Following Problems

Essay

Example 3.1
The information below is used for the following problems.
Bob's Shirt Shop sells t-shirts at soccer tournaments. The shirts sell for $20 each. This year, Bob expects to sell 500 shirts in May, 600 shirts in June, 500 shirts in July, 700 shirts in August, 900 shirts in September and 800 shirts in October. On average, 30% of his clients purchase on credit. Bob allows those customers to pay for their purchases the month after they have made their purchase. Bob's policy is to end each month with an ending inventory equal to 20% of the next month's projected sales. Bob pays $5 for each t-shirt that he purchases. Bob's supplier allows him to pay for his purchases 30 days after the purchase. Bob's Shirt Shop expects to incur the following expenses for each month of the third quarter of this year:
$$\begin{array} { l r } \text { Rent (60\% general and administrative, } 40 \% \text { selling) } & \$ 1000 \\\text { Utilities (50\% general and administrative, } 50 \% \text { selling) } & 600 \\\text { Advertising } & 500 \\\text { Salaries (70\% general and administrative, } 30 \% \text { selling) } & 2500 \\\text { Commissions (per each shirt sold) } & 3\end{array}$$ Bob must pay for his selling and general and administrative expenses in the month that they are incurred.
-Prepare a projected income statement for the third quarter of the year.