Question

Comprehensive Master (Operating) Budget

Bee Gee Distributors, a wholesale company, is considering whether to open a new distribution center near Bowling Green, Ohio. The center would open January 1, 2020. The economic outlook is reasonable, but extensive advance planning is required if such a commitment is to be made. As a part of the planning process, The Board of Directors requires a Master (i.e. Operating) Budgetfor the center’s first quarter of operations(i.e. January, February & March of 2020).  In order to prepare anybudget, management must make reasonable assumptions about expected sales, inventory levels and cash flows.  

SALES BUDGET: “What is the Profit Plan?”

        ** It all starts with a sales forecast **

a.     January sales are estimated to be $400,000 of which $100,000 (25%) will be cash and $300,000 will be on credit.  Management expects the above sales pattern to continue with an overall grow rate of 10% per month.  Prepare a sales budget.

b.     The company expects to collect 100% of the accounts receivable in the month following the month of the sale.  Prepare a schedule of expected cash receipts.

c.     Use the information developed above in requirements a and bto determine the amount of accounts receivable on the March 31 pro forma balance sheet and the amount of sales on the first quarter pro forma income statement.

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PURCHASES BUDGET: “What are our total needs, less what do we have”?

d.     Cost of goods sold will be 60% of sales.  Company policy is to budget an ending inventory balance equal to 25% of the next month’s projected cost of goods sold.  Prepare an inventory purchases budget.

Note: For March analysis needs, Aprilcost of goods sold is expected to be $314,000.

e.     All inventory purchases are on account.  The company pays 70% of accounts payable in the month of purchase. It pays the remaining 30% in the following month.  Prepare a schedule of expected cash payments for inventory purchases.

f.     Use the information developed above in requirements d and eto determine the amount of cost of goods sold on the first quarter pro forma income statement and the amounts of ending inventory and accounts payable on the March 31 pro forma balance sheet.

ADMINISTRATIVE & SALES EXPENSE BUDGET:

g.     Budgeted monthly selling and administrative expenses are:

Salary Expense	$24,000
Sales Commissions	5% of Sales
Supplies Expense	2% of Sales
Utilities	$ 1,400
Depreciation on New Equipment (see note below*)	?
Rent	$ 3,600
Miscellaneous	$    900

         *The capital expenditures budget shows that Bee Gee must purchase $100,000 of equipment on January 1 to establish the new center.  Since the equipment supplier allows a thirty-day trial period, assume Bee Gee will pay for the equipment in January (i.e. by 1/31).  Using Straight-line depreciation, the equipment is expected to have a 10-year useful life and a $10,000 salvage value.  

            SELLING AND ADMINISTRATIVE EXPENSE BUDGET:

h.     Sales commissions and utilities are paid in the month after the month in which they are incurred.  All other expenses are paid in the month in which they are incurred.  Prepare a schedule of cash payments for selling and administrative expenses.

Please do E,F,G,H

Answer 1