Question

Admire 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 $300000 of which 45 percent will be cash and the remainder will be on credit. The company expects all sales to increase at the rate of 20 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
Sales on account
Total budgeted sales

b. Schedule of Cash Receipts	October	November	December	Total-Qtr
Current cash sales
Plus collections from A/R
Total collections

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. (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 80 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
Plus desired ending inventory
Inventory needed
Less beginning inventory
Required purchases (on account)

d. Cash payments for inventory	October	November	December	Total-Qtr
Payment of current month's A/P
Payment for prior month's A/P
Total budgeted payments

Budgeted selling and administrative expenses per month follow.

• Salary expense (fixed): $ 28200
• Sales commissions:  5 percent of Sales
• Supplies expense:   2 percent of Sales
• Utilities (fixed): $2600              
• Depreciation on store equipment (fixed)*:   You compute    
• Rent (fixed) $ 11000          
• Miscellaneous (fixed): $ 3500      

*The capital expenditures budget indicates that the company will spend $182400 on October 1 for store fixtures, which are expected to have a $24000 residual value and a 36 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

Admire issued common stock for $50000 on October 5.

A dividend of $28000 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 1 percent per month in cash on the last day of the month. To be prudent, the company desires to maintain a $16000 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

Income 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

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Due to character limit I am attaching the image for Income Statement and Balance Sheet.

Sales Budget	October	November	December	Total	January		Note
Cash Sales	135,000.00	162,000.00	194,400.00	491,400.00	250,000.00		300000*45% for October, then 20% increase every month.
Sales on Account	165,000.00	198,000.00	237,600.00	600,600.00			300000*55% for October, then 20% increase every month.
Total budgeted sales	300,000.00	360,000.00	432,000.00	1,092,000.00
Schedule of Cash Receipts	October	November	December	Total
Current cash sales	135,000.00	162,000.00	194,400.00	491,400.00			Cash sales collected in the month of sales.
Plus collections from A/R	-	165,000.00	198,000.00	363,000.00			The accounts receivable generated by credit sales is collected in the month following the sale.
Total collections	135,000.00	327,000.00	392,400.00	854,400.00
Inventory Purchases Budget	October	November	December	Total	January
Budgeted cost of goods sold	180,000.00	216,000.00	259,200.00	655,200.00	150,000.00		60% of budgeted sales.
Plus desired ending inventory	21,600.00	25,920.00	15,000.00				10 percent of the next month’s cost of goods sold
Inventory needed	201,600.00	241,920.00	274,200.00	717,720.00
Less beginning inventory	-	21,600.00	25,920.00
Required purchases (on account)	201,600.00	220,320.00	248,280.00	670,200.00
Cash payments for inventory	October	November	December	Total
Payment of current month's A/P	161,280.00	176,256.00	198,624.00	536,160.00			80 percent of accounts payable in the month of purchase.
Payment for prior month's A/P	-	40,320.00	44,064.00	84,384.00			20 percent of accounts payable after 1 month of purchase.
Total budgeted payments	161,280.00	216,576.00	242,688.00	620,544.00
Selling and Admin.Expense Budget	October	November	December	Total			Depreciation on store fixtures
Salary Expense	28,200.00	28,200.00	28,200.00	84,600.00			Cost	182,400.00	A
Sales commission at 5% of sales	15,000.00	18,000.00	21,600.00	54,600.00			Less: Salvage	24,000.00	B
Supplies expense at 2% of sales	6,000.00	7,200.00	8,640.00	21,840.00			Depreciable Value	158,400.00	C=A-B
Utilities	2,600.00	2,600.00	2,600.00	7,800.00			Life (months)	36.00	D
Depreciation on store fixtures	4,400.00	4,400.00	4,400.00	13,200.00			Depreciation	4,400.00	E=C/D
Rent	11,000.00	11,000.00	11,000.00	33,000.00
Miscellaneous	3,500.00	3,500.00	3,500.00	10,500.00
Total S&A expenses	70,700.00	74,900.00	79,940.00	225,540.00
Cash payments for S&A	October	November	December	Total
Salary Expense	28,200.00	28,200.00	28,200.00	84,600.00			Paid in the month incurred.
Sales commission at 5% of sales	-	15,000.00	18,000.00	33,000.00			Paid after 1 month it is incurred.
Supplies expense at 2% of sales	6,000.00	7,200.00	8,640.00	21,840.00			Paid in the month incurred.
Utilities	-	2,600.00	2,600.00	5,200.00			Paid after 1 month it is incurred.
Depreciation on store fixtures	-	-	-	-			Depreciation is a non cash item.
Rent	11,000.00	11,000.00	11,000.00	33,000.00			Paid in the month incurred.
Miscellaneous	3,500.00	3,500.00	3,500.00	10,500.00			Paid in the month incurred.
Total payments for S&A expenses	48,700.00	67,500.00	71,940.00	188,140.00
Cash budget	October	November	December	Total
Opening Cash Balance	-	16,620.00	16,304.00
Issuance of stock	50,000.00	-	-	50,000.00
Collections from customers	135,000.00	327,000.00	392,400.00	854,400.00
Cash available	185,000.00	343,620.00	408,704.00	937,324.00
Less payments
For inventory purchases	161,280.00	216,576.00	242,688.00	620,544.00
For S&A expenses	48,700.00	67,500.00	71,940.00	188,140.00
Purchase of store fixtures	182,400.00	-	-	182,400.00
Pay dividend	-	-	28,000.00	28,000.00
Interest expense	-	2,240.00	1,830.00	4,070.00			Loan Value* 1%
Total budgeted payments	392,380.00	286,316.00	344,458.00	1,023,154.00
Cash balance before borrow/repay	(207,380.00)	57,304.00	64,246.00
Financing activity
Borrowing (repayment)	224,000.00	(41,000.00)	(48,000.00)
Ending cash balance	16,620.00	16,304.00	16,246.00