Question

Choice is a retail company that sells specialized gardening products. The company is considering opening a new store on October 1, Year1. As budget coordinator, you have been asked to prepare a master budget for the first 3 months of the company’s operation. You have gathered the following information:

October sales are estimated to be $280000 of which 60 percent will be cash and the remainder will be on credit. The company expects all sales to increase at the rate of 25 percent per month for November and December. Sales in January Year 2 are expected to be $250000.

The company expects to collect 100 percent of the accounts receivable generated by credit sales in the month following the sale.

Prepare a sales budget and a schedule of cash receipts using these facts and your excel template. Check your answers here before moving to the next part, by completing the cells requested in the chart below.

a. Sales Budget	October	November	December	Total-Qtr
Cash sales	168000	210000	262500	640500
Sales on account	112000	140000	175000	175000
Total budgeted sales	280000	350000	437500	1067500

b. Schedule of Cash Receipts	October	November	December	Total-Qtr
Current cash sales	168000	210000	262500	640500
Plus collections from A/R	0	112000	140000	252000
Total collections	168000	322000	402500	892500

The cost of goods sold is 80 percent of sales. The company desires to maintain a minimum ending inventory equal to 30 percent of the next month’s cost of goods sold. (Ending inventory for December is based on budgeted January Year2 sales.)

Assume that all inventory purchases are made on account (on credit). The company pays 20 percent of accounts payable in the month of purchase and the remaining amount in the following month.

In excel, prepare an inventory purchases budget and a cash payments budget for inventory purchases. Use the check figures below before you continue.

c. Inventory Purchases Budget	October	November	December	Total-Qtr
Budgeted cost of goods sold	224000	280000	350000	854000
Plus desired ending inventory	84000	105000	60000	60000
Inventory needed	308000	385000	410000	914000
Less beginning inventory	0	84000	105000	0
Required purchases (on account)	308000	301000	305000	914000

d. Cash payments for inventory	October	November	December	Total-Qtr
Payment of current month's A/P	61600	60200	61000	182800
Payment for prior month's A/P	0	246400	240800	240800
Total budgeted payments	61600	306600	301800	423600

Budgeted selling and administrative expenses per month follow.

Salary expense (fixed): $ 21500

Sales commissions:  3 percent of Sales

Supplies expense:   1 percent of Sales

Utilities (fixed): $2300              

Depreciation on store equipment (fixed)*:   You compute    

Rent (fixed) $ 8000          

Miscellaneous (fixed): $ 1250      

*The capital expenditures budget indicates that the company will spend $450000 on October 1 for store fixtures, which are expected to have a $48000 residual value and a 48 month useful life.

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.

In excel, prepare the selling and administrative expenses budget and the cash payments budget for selling and administrative expenses. Check the key figures below.

e. Selling and Admin.Expense Budget	October	November	December	Total-Qtr
Salary expense
Sales commissions
Supplies expense
Utilities
Depreciation on store fixtures
Rent
Miscellaneous
Total S&A expenses

f. Cash payments for S&A	October	November	December	Total-Qtr
Salary expense
Sales commissions
Supplies expense
Utilities
Depreciation on store fixtures
Rent
Miscellaneous
Total payments for S&A expenses

Choice issued stock for 300000 on October 5. A dividend of $40000 was paid on December 15.

The company borrows and repays funds in increments of $1,000 on the last day of the month. The company also pays its vendors on the last day of the month. It pays interest of 1percent per month in cash on the last day of the month. To be prudent, the company desires to maintain a $10000 cash cushion.   

Prepare a cash budget on your excel template. Check key figure below.

g. Cash Budget	October	November	December	Total-Qtr
Beginning cash balance
Issuance of stock
Collections from customers
Cash available
Less payments
For inventory purchases
For S&A expenses
Purchase of store fixtures
Pay dividend
Interest expense
Total budgeted payments
Cash balance before borrow/repay
Financing activity
Borrowing (repayment)
Ending cash balance

ncome statement

Input expenses as negatives. Use a minus sign in front of the number.

Sales revenue
Cost of goods sold
Gross margin
S&A expenses
Operating income
Interest expense
Net income

Balance Sheet

Enter any contra-assets as negative numbers. Use a minus sign.

Assets
Cash
Accounts receivable
Inventory
Store fixtures
Accumulated depreciation
Total assets
Liabilities
Accounts payable
Utilities payable
Sales commissions payable
Line of credit liability
Total liabilities
Equity
Common stock
Retained earnings
Total equity
Total liabilities and equity

Answer 1

Answer 4 parts
e. Selling and Admin.Expense Budget Salary expense f Cash payments for S&A October 21500 8400 2800 S 2300 November December Total-Qtr 64500 32025 1067 6900 OctoberNovember DecemberFotat-Qtr 21500| S 21500 10500 3500 S 2300 S 21500 13125 137 $2300 Salary expense 21500 24 8100 Supplies expense Supplies expensc 280 2300 2300 Depreciation on store fixtures 8375 8375 8375 25125 Rent $ 8000 $1250 8000 S 1250 8000 1250 24000 $3150 Ront Miscellaneaus 8000 125 8000 8000 0 Miscellaneous tal payments. for 1 Total S&A expenses s 52625 55425 58925 166975 47925 126425 Sales Commission 3% of Sales Given in SUPPLIES 1% of Sales Given in question 13 question payment payment madeof 14 Depreciation 450000-48000/48 8375 per mont 17

g. Cash Budget October November December Total Otr 10420 Beginning cash balance Issuance of stock Gollections from customers Gash Less payments Income statement of the quarter 300000 300000 168000322000 46800O 30 4129201192500 rovenue 40250 Cost of goods sold Gross marg S&A expenses Operating income interest expense Net income 892500 available 332840 in 21350 166 46525 20 44465 301800 or inventory purchase: For S8A expense Purchase of store fixtures Pay didend Interest expense 670000 126425 450000 61600 306600 3550 44950 4792 40000 880 1Tu0 Total budgeted payments 5451s9324303909o efo borrow/repay 19580 22015 95985 Financing activity 12000 i10015 106000 Borrowing trepaymunt) Ending cash balance 30000 10420 10850 001 Int 1% on, outstandin. balance