Warshaw Company budgets payroll at $3300 per month plus a percentage of monthly sales. The June operating expenses budget includes total payroll of $10,900 with budgeted sales of $190,000. Sales for July are budgeted at $130,000 while purchases of inventory for July are budgeted at $940,000. Depreciation and insurance for July are estimated at $600 and $300, respectively. Office and administrative expenses related to purchasing inventory are budgeted at 5% of purchases for the month. The purchase of $2900 in equipment and $1000 in furniture is expected in July. The July payroll should be budgeted at

Question

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To calculate the July payroll, first determine the percentage of sales that payroll constitutes in June. With a base payroll of $3300 and total payroll of $10,900 for June, the variable portion is $10,900 - $3300 = $7600. This variable portion is based on June sales of $190,000. So, the rate is $7600 / $190,000 = 0.04 or 4% of sales. For July, with budgeted sales of $130,000, the variable payroll portion is 4% of $130,000 = $5200. Adding the base payroll of $3300 gives a total July payroll of $3300 + $5200 = $8500.

Warshaw Company Budgets Payroll at $3300 Per Month Plus a Percentage