Question

Required information [The following information applies to the questions displayed below.] Camden Company is a retail company that specializes in selling outdoor camping equipment. The company is considering opening a new store on October 1, year 1. 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 a. October sales are estimated to be $125,000, of which 40 percent will be cash and 60 percent will be credit. The company expects sales to increase at the rate of 8 percent per month. Prepare a sales budget. b. 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. c. 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 $6,000. Assume that all purchases are made on account. Prepare an inventory purchases budget. d. The company pays 70 percent of accounts payable in the month of purchase and the remaining 30 percent in the following month. Prepare a cash payments budget for inventory purchases. e. Budgeted selling and administrative expenses per month follow: Salary expense (fixed) Sales commissions Supplies expense Utilities (fixed) Depreciation on store fixtures (fixed) * Rent (fixed) Miscellaneous (fixed) $9,000 5% of Sales 2% of Sales $ 700 $2,000 $ 2,400 $ 600 *The capital expenditures budget indicates that Camden will spend $82,000 on October 1 for store fixtures, which are expected to have a $10,000 salvage value and a three-year (36-month) useful life. Use this information to prepare a selling and administrative expenses budget. f. 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. g. Camden 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 $6,000 cash cushion. Prepare a cash budget.

Part F.) 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.

Part G.) Camden 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 $6,000 cash cushion. Prepare a cash budget. (Any repayments/shortage which should be indicated with a minus sign.)

Answer 1

Camden Company Sales Budget ReqA Cash sales Sales on account Total budgeted sales Oct 50,000 75,000 125,000 Nov 54,000 81,000 135,000 Dec 58,320 87,480 145,800 Quarter 162,320 243,480 405,800 Calculation Oct =125000*40% =125000*60% Nov =135000*40% =135000*60% =125000*(1+8%) Dec =145800*40% =145800*60% =135000*(1+8%) Calculation Oct Nov Dec Schedule of cash receipts ReqB Cash sales Collections from AR Total collections Oct 50,000 - 50,000 Nov 54,000 75,000 129,000 Dec 58,320 81,000 139,320 Quarter 162,320 156,000 318,320 Inventory Purchase budget ReqC Budgeted COGS Add Desired End Inv Inventory Needed Less Beginning Inv Required Purchases (on account) Oct 75,000 8,100 83,100 Dec =145800*60% Oct =125000*60% =81000*10% Nov =135000*60% =87480*10% Nov 81,000 8,748 89,748 8,100 81,648 Quarter 243,480 6,000 249,480 Dec 87,480 6,000 93,480 8,748 84,732 End Inv of Oct End Inv of Nov 83,100 249,480 Schedule of cash payments budget for Inv Purchases ReqD Oct Payment of current months AP 58,170 Payment of prior months AP Total disbursements for pur 58,170 Oct =83100*70% Nov 57,154 24,930 82,084 Dec 59,312.40 24,494 83,807 Quarter 174,636 49,424 224,060 Nov =81648*70% =83100*30% Dec =84732*70% =81648*30%

Oct Nov Dec =125000*5% =125000*2% =135000*5% =135000*2% =145800*5% =145800*2% Selling & Admin Expenses Budget ReqE Salary expense Sales commission Supplies expense Utilities Depreciation on store fixtures Rent Miscellaneous Total S&A expenses Oct 9,000 6,250 2,500 700 2,000 2,400 600 23,450 Nov 9,000 6,750 2,700 700 2,000 2,400 600 24,150 Dec 9,000 7,290 2,916 700 2,000 2,400 600 24,906 Quarter 27,000 20,290 8,116 2,100 6,000 7,200 1,800 72,506 Oct Nov Oct Nov Dec 9,000 Schedule of cash payments for S&A Expenses ReqF Salary expense Sales commission Supplies expense Utilities Depreciation on store fixtures Rent Miscellaneous Total Payments for S&A expenses Dec 9,000 6,250 2,700 700 9,000 6,750 2,916 700 Quarter 27,000 13,000 8,116 1,400 2,500 2,400 600 14,500 2,400 600 21,650 2,400 600 22,366 7,200 1,800 58,516

Oct Quarter Oct Nov Dec Nov 6,238 129,000 135,238 Dec 6,000 139,320 145,320 50,000 50,000 318,320 318,320 82,084 21,650 83,807 22,366 Cash budget ReqG Cash balance, beginning Add Cash collections Total cash available Less cash payments For Inventory purchases For S&A expenses For equipment Total budgeted payments Payments minus receipts Financing Borrowings at beginning Repayments at end Interest at 1% per month Total Borrowings (repayment) Cash balance, ending 58,170 14,500 82,000 154,670 (104,670) 224,060 58,516 82,000 364,576 (46,256) 103,734 31,504 106,173 39,147 111,000 =105,000+6,000 Round off deficit of 104,670 to 105,000 for loan calc =6,000-31,504+93 =6,000-39,147+71 =111,000*1%*1/12 =(111,000-25,411)*1%*1/12 (93) 110,908 6,238 =111,000*1%*1/12 111,000 (58,487) (256) 52,256 6,000 (25,411) (93) (25,504) 6,000 (33,076) (71) (33,147) 6,000