Question

Problem 14-23 Preparing a master budget for retail company with no beginning account balances LO 14-2, 14-3, 14-4, 14-5, 14-6

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Rooney 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

October sales are estimated to be $240,000, of which 40 percent will be cash and 60 percent will be credit. The company expects sales to increase at the rate of 25 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 $13,200. Assume that all purchases are made on 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)	$	19,200
Sales commissions		5	% of Sales
Supplies expense		2	% of Sales
Utilities (fixed)	$	2,600
Depreciation on store fixtures (fixed)*	$	5,200
Rent (fixed)	$	6,000
Miscellaneous (fixed)	$	2,400

*The capital expenditures budget indicates that Rooney will spend $219,200 on October 1 for store fixtures, which are expected to have a $32,000 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.

Rooney 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 $24,000 cash cushion. Prepare a cash budget.

Answer 1

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1. Sales Budget
		October	November	December	Total
Estimated Sales		240000			240000
240000*125%			300000		300000
300000*125%				375000	375000
Estimated Total Sales		240000	300000	375000	915000
2. Schedule of Cash Receipts
		October	November	December	Total
Cash Sale		96000	120000	150000	366000
Credit Sale Collected for:
October	240000*60%		144000		144000
November	300000*60%			180000	180000
Estimated Collection		96000	264000	330000	690000
3. Inventory Purchase Budget
		October	November	December	Total
Cost of Goods Sold	60% of Sale	144000	180000	225000	549000
Add: Desired Inventory	10% of Next Month COGS	18000	22500	13200	13200
Cost of Goods Available for Sale		162000	202500	238200	562200
Less: beginning Inventory		0	18000	22500	0
Purchases		162000	184500	215700	562200
4. Cash Payment Budget for Purchases
		October	November	December	Total
Payment made for:
October Purchase		113400	48600		162000
November Purchase			129150	55350	184500
December Purchase				150990	150990
Total Estimated Payment		113400	177750	206340	497490
5. Selling and Administrative Exp Budget
		October	November	December	Total
Salary Expense		19200	19200	19200	57600
Sales Commission		12000	15000	18750	45750
Supplie Expense		4800	6000	7500	18300
Utilities		2600	2600	2600	7800
Depreciation		5200	5200	5200	15600
Rent		6000	6000	6000	18000
Miscellaneous		2400	2400	2400	7200
Total Selling and Admin Expense		52200	56400	61650	170250
6. Cash payment budget for Selling and Admin
		October	November	December	Total
Salary Expense		19200	19200	19200	57600
Sales Commission		0	12000	15000	27000
Supplie Expense		4800	6000	7500	18300
Utilities		0	2600	2600	5200
Depreciation	Non Cash	0	0	0	0
Rent		6000	6000	6000	18000
Miscellaneous		2400	2400	2400	7200
Estimated Cash Payment for Selling and Admin		32400	48200	52700	133300
7. Cash Budget
		October	November	December	Total
Beginning Balance		0	24040	24000	0
add: Cash Collection from receivables		96000	264000	330000	690000
Cash Available	A	96000	288040	354000	690000
Cash payment for:
Purchases		113400	177750	206340	497490
Selling and Admin Expense		32400	48200	52700	133300
Capital Expenditure		219200			219200
Cash Payment	B	365000	225950	259040	849990
Desired Cash Balance	C	24000	24000	24000	24000
Excess/(deficit) Cash balance	A-B-C	-293000	38090	70960	-183990
Financing:
Borrowing	D	296000			296000
Interest	E	2960	2960	2609	8529
Repayment	F		35130	68351	103481
Ending Balance	A-B+D-E-F	24040	24000	24000	24000