Question

Camden 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

October sales are estimated to be $125,000, of which 40 percent will be cash and 60 percent will be credit. The company expects sales to increase at the rate of 8 percent per month. Prepare a sales budget.

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.

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. However, ending inventory of December is expected to be $6,000. Assume that all purchases are made on the account. Prepare an inventory purchases budget.

The company pays 70 percent of accounts payable in the month of purchase and the remaining 30 percent in the following month. Prepare a cash payments budget for inventory purchases.

Budgeted selling and administrative expenses per month follow:

Salary expense (fixed)	$	9,000
Sales commissions		5	% of Sales
Supplies Expense		2	% of Sales
Utilities (fixed)	$	700
Depreciation on store fixtures (fixed)*	$	2,000
Rent (fixed)	$	2,400
Miscellaneous (fixed)	$	600

*The capital expenditures budget indicates that Camden will spend $82,000 on October 1 for store fixtures, which are expected to have a $10,000 salvage value and a three-year (36-month) useful life.

Use this information to prepare a selling and administrative expenses budget.

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.

Camden 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 1 percent per month in cash on the last day of the month. To be prudent, the company desires to maintain a $6,000 cash cushion. Prepare a cash budget.

Camden 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:

Prepare a pro forma income statement for the quarter.

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

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

Answer 1

Master budget for last quarter
Items	October	November	December	Quarter
Budgeted Sales revenue	$125,000	$135,000	$145,800	$405,800
Cash Sales	$50,000	$54,000	$58,320	$162,320
Credit Sales	$75,000	$81,000	$87,480	$243,480
Cash collection for credit sales		$75,000	$81,000	$156,000
Total Cash Reciepts	$50,000	$129,000	$139,320	$318,320
Cost of goods sold	$75,000	$81,000	$87,480	$243,480
Add: Ending Inventory (100%)	$8,100	$8,748	$6,000	$6,000
Less: Beginning Inventory		$8,100	$8,748
Budgeted Inventory purchase	$83,100	$81,648	$84,732	$249,480
Cash paid for inventory purchase	$58,170	$57,154	$59,312	$174,636
Cash paid in following month		$24,930	$24,494	$49,424
Cash Payment budget for inventory purchase	$58,170	$82,084	$83,807	$224,060
Selling and Administrative expenses Budget
Salary expense	$9,000	$9,000	$9,000	$27,000
Sales Commission	$6,250	$6,750	$7,290	$20,290
Supplies expenses	$2,500	$2,700	$2,916	$8,116
Utilities	$700	$700	$700	$2,100
Depreciation	$2,000	$2,000	$2,000	$6,000
Rent	$2,400	$2,400	$2,400	$7,200
Miscellaenous	$600	$600	$600	$1,800
Total expenses	$23,450	$24,150	$24,906	$72,506
Cash Payment Budget for Selling and Administrative expenses
Salary expense	$9,000	$9,000	$9,000	$27,000
Sales Commission		$6,250	$6,750	$13,000
Supplies expenses	$2,500	$2,700	$2,916	$8,116
Utilities		$700	$700	$1,400
Depreciation	$2,000	$2,000	$2,000	$6,000
Rent	$2,400	$2,400	$2,400	$7,200
Miscellaenous	$600	$600	$600	$1,800
Total cash disbursement	$16,500	$23,650	$24,366	$64,516
Capital Expenditure
New equipment purchase	$82,000			$82,000
				$0
Total Capital expenditure	$82,000	$0	$0	$82,000
Total Cash Outflow	$156,670	$105,734	$108,173	$370,576
Net cash inflow	($106,670)	$23,266	$31,147	($52,256)
Minimum balance requirement	$6,000	$6,000	$6,000	$6,000
Beginning Cash Balance		$6,330	$6,466
Cash inflow	($106,670)	$23,266	$31,147	($52,256)
Additional loan required	$113,000			$113,000
Loan repaid		$22,000	$30,000	$52,000
Interest paid		$1,130	910	$2,040
Ending Cash Balance	$6,330	$6,466	$6,704	$6,704