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Vernon Company is a retail company that specializes in selling outdoor camping equipment. The company is considering opening a new store on October 1, 2019. The company president formed a planning committee to prepare a master budget for the first three months of operation. As budget coordinator, you have been assigned the following tasks:

Required

1. October sales are estimated to be $280,000, of which 45 percent will be cash and 55 percent will be credit. The company expects sales to increase at the rate of 25 percent per month. Prepare a sales budget.

2. The company expects to collect 100 percent of the accounts receivable generated by credit sales in the month following the sale. Prepare a schedule of cash receipts.

3. The cost of goods sold is 60 percent of sales. The company desires to maintain a minimum ending inventory equal to 10 percent of the next month’s cost of goods sold. However, ending inventory of December is expected to be $13,600. Assume that all purchases are made on account. Prepare an inventory purchases budget.

4. The company pays 80 percent of accounts payable in the month of purchase and the remaining 20 percent in the following month. Prepare a cash payments budget for inventory purchases.

5. Budgeted selling and administrative expenses per month follow:

Salary expense (fixed)	$	19,600
Sales commissions		5	% of Sales
Supplies expense		2	% of Sales
Utilities (fixed)	$	3,000
Depreciation on store fixtures (fixed)*	$	5,600
Rent (fixed)	$	6,400
Miscellaneous (fixed)	$	2,800

1. *The capital expenditures budget indicates that Vernon will spend $237,600 on October 1 for store fixtures, which are expected to have a $36,000 salvage value and a three-year (36-month) useful life.

Use this information to prepare a selling and administrative expenses budget.

6. Utilities and sales commissions are paid the month after they are incurred; all other expenses are paid in the month in which they are incurred. Prepare a cash payments budget for selling and administrative expenses.

7. Vernon borrows funds, in increments of $1,000, and repays them on the last day of the month. Repayments may be made in any amount available. The company also pays its vendors on the last day of the month. It pays interest of 1 percent per month in cash on the last day of the month. To be prudent, the company desires to maintain a $28,000 cash cushion. Prepare a cash budget.

Answer 1

sales budget Estimated Total Sales Estimated Cash Sales Estimated Credit Sales October November December $ 280,000 $ 350,000 $437,500 $ 126,000 $ 157,500 $ 196,875 $ 154,000 $ 192,500 $ 240,625 schedule of cash receipts NSBUBB von WN From Cash Sales From Credit Sales Total Cash Receipts October November December $ 126,000 $ 157,500 $ 196,875 $0 $ 154,000 $ 192,500 $ 126,000 $311,500 $ 389,375 cost of goods sold add: desired ending inventory Total needs beginning inventory inventory to be purchased inventory purchases budget October November December $ 168,000 $ 210,000 $ 262,500 $ 21,000 $26,250 $ 13,600 $ 189,000 $ 236,250 $ 276,100 $0 $ 21,000 $26,250 $ 189,000 $ 215,250 $ 249,850

DE F cash payments budget for inventory purchases October November December For current month purchases $ 151,200 $ 172,200 $ 199,880 For previous month purchases $0 $ 37,800 $ 43,050 total cash payments for inventory purchases $ 151,200 $ 210,000 $ 242,930 selling and administrative expenses budget October November December Salary expense (fixed) $ 19,600 $ 19,600 $ 19,600 Sales commissions $ 14,000 $ 17,500 $ 21,875 Supplies expense $ 5,600 $ 7,000 $8,750 Utilities (fixed) $3,000 $3,000 $3,000 Depreciation on store fixtures (fixed) $ 5,600 $ 5,600 $ 5,600 Rent (fixed) $6,400 $6,400 | $6,400 Miscellaneous (fixed) $ 2,800 $ 2,800 $ 2,800 total selling and administrative expenses $ 57,000 $ 61,900 $ 68,025 cash payments budget for selling and administrative expenses October November December Salary expense (fixed) $ 19,600 $ 19,600 $ 19,600 Sales commissions $0 $ 14,000 $17,500 Supplies expense $ 5,600 $ 7,000 $8,750 Utilities (fixed) $0 $ 3,000 $3,000 Rent (fixed) $ 6,400 $ 6,400 $ 6,400 Miscellaneous (fixed) $ 2,800 $ 2,800 $ 2,800 cash payments for for selling and administrative expenses $ 34,400 $ 52,800 $ 58,050

B49 D E F G cash budget October November December $0 $ 28,800 $ 28,000 $ 126,000 $311,500 $ 389,375 $ 126,000 $340,300 $ 417,375 $ 210,000 $ 52,800 $ 242,930 $ 58,050 beginning balance add: cash receipts total cash available cash payments total cash payments for inventory purchases cash payments for for selling and administrative expenses cash payments for store fixtures total cash payments net cash available add: loan taken loan repaid interest paid ending cash balance $ 151,200 $ 34,400 $ 237,600 $ 423,200 $ 297,200 $ 326,000 $ 262,800 $ 77,500 $ 300,980 $ 116,395 $46,240 $ 3,260 $ 28,000 $ 85,597 $ 2,798 $ 28,000 $ 28,800

for formulas and calculations, refer to the image below -

A F a s Estimated Total Sales Estimated Cash Sales Estimated Credit Sales ales budget October 280000 =D4*45% =D4*55% November =D4*1.25 =E4*45% =E4*55% December =E4*1.25 =F4*45% =F4*55% schedule of cash receipts October =D5 From Cash Sales From Credit Sales Total Cash Receipts November =E5 =D6 =E10+E11 December =F5 =E6 =F10+F11 =D10+D11 cost of goods sold add: desired ending inventory Total needs beginning inventory inventory to be purchased inventory purchases budget October =D4*60% =E16*10% =D16+D17 November =E4*60% =F16*10% =E16+E17 =D17 =E18-E19 December =F4*60% 13600 =F16+F17 =E17 =F18-F19 =D18-019

B22 А в с D Ε F cash payments budget for inventory purchases October November For current month purchases =D20*80% =E20*80% For previous month purchases =D20*20% total cash payments for inventory purchases =D24+D25 =E24+E25 December =F20*80% =E20*20% =F24+F25 selling and administrative expenses budget October November Salary expense (fixed) 19600 19600 Sales commissions =D4*5% =E4*5% Supplies expense =D4*2% =E4*2% Utilities (fixed) 3000 3000 Depreciation on store fixtures (fixed) 5600 5600 Rent (fixed) 6400 6400 Miscellaneous (fixed) 2800 2800 total selling and administrative expenses =SUM(D30:D36) =SUM(E30:E36) December 19600 =F4*5% =F4*2% 3000 5600 6400 2800 =SUM(F30:F36) cash payments budget for selling and administrative expenses October November =C30 =D30 =E30 =C31 =D31 =C32 =D32 =E32 =C33 =D33 =C35 =D35 =E35 =C36 =D36 =E36 cash payments for for selling and administrative expenses 1=SUM(D41:046) =SUM(E41:E46) December =F30 =E31 =F32 =E33 =F35 =F36 =SUM(F41:F46)

B49 00 60 cash budget October November =D63 =E12 =E51+E52 =D12 December =E63 =F12 =F51+F52 =D51+052 beginning balance add: cash receipts total cash available cash payments =C26 =C47 cash payments for store fixtures total cash payments net cash available add: loan taken loan repaid interest paid ending cash balance =D26 =E26 =F26 =D47 =E47 =F47 237600 =D55+D56+D57 =E55+E56 =F55+F56 =D53-D58 =E53-E58 =F53-F58 =28000+298000 46240 85597.4 =D60*1% =(D60-E61) *1% =D59+D60-D61-D62 =E59+E60-E61-E62 =F59+F60-F61-F62

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