Question

abulous 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 $500000 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 10 percent per month for November and December. Sales in January Year 2 are expected to be $400000.

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 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 40 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): $ 38400

Sales commissions:  5 percent of Sales

Supplies expense:   2 percent of Sales

Utilities (fixed): $3200              

Depreciation on store equipment (fixed)*:   You compute    

Rent (fixed) $ 12000          

Miscellaneous (fixed): $ 2000      

*The capital expenditures budget indicates that the company will spend $900000 on October 1 for store fixtures, which are expected to have a $24000 residual value and a 96 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

Fabulous issued common stock for $600000 on October 5.

A dividend of $2600 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 $40000 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

Answer 1

A - Sales Budget	October	November	December	Total Qtr	Comments
Cash Sales	225000	247500	272250	744750	Cash Sales = 45 % of total Sales
Sales on Account	275000	302500	332750	910250	Sales on account = Total Sales less Cash Sales
Total Budgeted Sales	500000	550000	605000	1655000	Sales Increasing by 10 % Every Month
B- Schedule of Cash Receipts	October	November	December	Total Qtr	Comments
Current Cash Sales	225000	247500	272250	744750	Cash Sales = 45 % of total Sales
Collection from AR	0	275000	302500	577500	Sales on Account for Previous month
Total Collection	225000	522500	574750	1322250	Total
C - Inventory Purchase Budget	October	November	December	Total Qtr	Comments
Budgeted Cost of Goods Sold	400000	440000	484000	1324000	80% of the sales Value
Plus Desired Ending Inventory	132000	145200	96000	373200	30% of the COGS of next month
Inventory Needed	532000	585200	580000	1697200	Sum of above 2
Less Beginning Inventory	0	132000	145200	277200	End inventory of previous month
Required Purchase	532000	453200	434800	1420000	Total requirement less Beginning Inventory
D - Cash Payment for inventories	October	November	December	Total Qtr	Comments
Payment for the current month's AP	212800	181280	173920	568000	40% of required purchase on account
Payment for the prior month's AP	0	319200	271920	591120	balance of previous month
Total Budget payment	212800	500480	445840	1159120
E - Selling and Admin Expense Budget	October	November	December	Total Qtr	Comments
Salary Expenses	38400	38400	38400	115200	Fixed
Salary Commission	25000	27500	30250	82750	5% of Sales
Supplies Expenses	10000	11000	12100	33100	2% of Sales
Utilities	3200	3200	3200	9600	Fixed
Depreciation	9125	9125	9125	27375	(900000-24000)/96
Rent	12000	12000	12000	36000	Fixed
Miscellaneous	2000	2000	2000	6000	Fixed
Total S&A expeses	99725	103225	107075	310025
F - Cash Payment of S&A	October	November	December	Total Qtr	Comments
Salary Expenses	38400	38400	38400	115200
Sales Commisssion	25000	27500	30250	82750
Supplies Expenses	10000	11000	12100	33100
Utilities	3200	3200	3200	9600
Depreciation	0	0	0	0	There will be no payment for Depreciation
Rent	12000	12000	12000	36000
Miscellaneous	2000	2000	2000	6000
Total payment for S&A expeses	90600	94100	97950	282650