Question

Munoz 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 $400,000, of which 45 percent will be cash and 55 percent will be credit. The company expects sales to increase at the rate of 20 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 70 percent of sales. The company desires to maintain a minimum ending inventory equal to 20 percent of the next month’s cost of goods sold. However, ending inventory of December is expected to be $13,900. 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)	$	19,900
Sales commissions		4	% of Sales
Supplies expense		2	% of Sales
Utilities (fixed)	$	3,300
Depreciation on store fixtures (fixed)*	$	5,900
Rent (fixed)	$	6,700
Miscellaneous (fixed)	$	3,100

*The capital expenditures budget indicates that Munoz will spend $180,600 on October 1 for store fixtures, which are expected to have a $39,000 salvage value and a two-year (24-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. Munoz 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 2 percent per month in cash on the last day of the month. To be prudent, the company desires to maintain a $31,000 cash cushion. Prepare a cash budget.

8. Prepare a pro forma income statement for the quarter.

9. Prepare a pro forma balance sheet at the end of the quarter.

10. Prepare a pro forma statement of cash flows for the quarter.

Answer 1

1.

Sales Budget in $

October November December Total Sales in $ 400000 480000 576000 1456000 calculations (400000+(20%*400000) (480000+20%*480000)

2.

Cash Reciepts in $

	October	November	December
sales	400000	480000	576000
Cash sales (45% of sales)	180000	216000	259200
Credit sales received (55% of previous month's sale)	0	220000	264000
Total Cash Reciepts	180000	436000	523200

credit sales - oct = 400000*55%= 220000

november = 480000*55%=264000

december = 576000*55% = 316800

3.

purchase budget in $

	Oct	Nov	Dec
Sales	400000	480000	576000
Cost of Goods Sold (70% of sales)	280000	336000	403200
Add:
Inventory required at the month end (20% of next months cost of goods sold)	67200	80640	13900
Less:
Inventory available at the begginig of the month	0	67200	80640
Inventory purchase Budget	347200	349440	336460

cash payment budget $

	oct	Nov	Dec
Inventory Purchase	347200	349440	336460
Cash Payment (80% in month of purchase)	277760	279552	269168
Cash Payment(20% in following month)	0	69440	69888
Total Cash Payment Budget	277760	348992	339056