Question

Rundle 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:

Problem 14-23 Part 1

Required

1. October sales are estimated to be $350,000, of which 35 percent will be cash and 65 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 $13,100. Assume that all purchases are made on account. Prepare an inventory purchases budget.

4. The company pays 60 percent of accounts payable in the month of purchase and the remaining 40 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)	$	19,100
Sales commissions		4	% of Sales
Supplies expense		2	% of Sales
Utilities (fixed)	$	2,500
Depreciation on store fixtures (fixed)*	$	5,100
Rent (fixed)	$	5,900
Miscellaneous (fixed)	$	2,300

1. *The capital expenditures budget indicates that Rundle will spend $153,400 on October 1 for store fixtures, which are expected to have a $31,000 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. Rundle 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 $23,000 cash cushion. Prepare a cash budget.

Rundle 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:

Problem 14-23 Part 2

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

Ans.                                                               Sales Budget (in $)

                                             OCT 2019                           NOV 2019                                  DEC 2019

Sales (20% Incremental)           350000       420000 504000

Cash sale                          122500                                147000 176400

Credit sale                         227500                               273000                                    327600

                                                                   Schedule of cash Receipt

Cash sale receipt    122500    147000 176400

Credit sale receipt -    227500 273000

Total     122500    374500    449300

   Purchase Budget

                                                                     OCT                               NOV                               Dec

Cost of goods sold (70% of sale    245000    294000 352800

+Closing stock (20% of next month)    58800    70560    13100

-Op. stock     - (58800) (70560)

Purchase of inventory      303800 305760    295340

   Cash payment budget for inventory purchase

Inventory purchase    303800    305760    295340

60% current month 182280    183456    177204

40% next month       -    121520    122304

Total payment    182280       304976    299508    

   Cash Payment Budget for selling and admn exp payment

                                                                  OCT                                 NOV                              Dec

Salary exp.                                            19100                             19100                          19100

Sales commission @4%                    14000                              16800                         20160

Supplies exp @2% of sale                      7000                                 8400                          10080

Utilities                                                  2500                                2500                           2500

Rent                                                      5900                                5900                           5900

Mis. exp                                                2300                                2300                           2300

Total exp.                                              50800                              55000                         60040

                                                                                 Cash Budget

                                                           OCT                                   NOV                             DEC

Op. Balance                                     -                                     23020                          23000

Receipt                                          122500                              374500                        449300

Payment for inventory pur.         (182280)                           (304976)                       (299508)

Payment for selling and admn          (50800)                             (55000)                        (60040)

Capital exp.                                   (153400)                             -                                     -

Borrowing/Repayment                     287000*                             (14544)**                     89852***

Closing bal.    23020    23000 23000                     

* Borrow in the month of OCT is 287000 and ** payment of NoV 14544 including (287000X2%) 5740 interest and *** payment of 89852 to vendor including {287000-8804)*2% 5564

Net principal payment (14544+89852) -(5740+5564) = 93092

Net borrowing outstanding (287000-93092) = 193908

                                                                               Income statement

Sales value                                                               1274000

COGS (70%)                                                             891800

Gross profit                                                               382200

Selling and admn exp                                                 (165840)

Dep(153400-31000)/24X3                                             (15300)

Intt exp(5740+5564)                                                    (11304)

Net profit                                                                    189756

                                                                   Pro Forma Balance Sheet for the quarter

Liabilties                                        $ Assets    $

Net profit 189756                PPE (153400-15300)               138100

Borrowing    193908                Inventory                                13100

Account payable 118136               Cash                                      23000

                                                                             Account receivable                  327600

                                                                                                                                        

                                                     Pro Forma Cash flow statement

Cash flow from operating activities                                             $

Net profit during the year           189756

Add: depreciation    15300 205056

Cash flow from investing activities

purchase of equipment    (153400)

Cash flow from Financing activities

Borrowing (193908)

Net cash flow during the year