Question

Baird 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 $300,000, of which 40 percent will be cash and 60 percent will be credit. The company expects sales to increase at the rate of 20 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 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 $12,100. Assume that all purchases are made on account. Prepare an inventory purchases budget.

The company pays 80 percent of accounts payable in the month of purchase and the remaining 20 percent in the following month. Prepare a cash payments budget for inventory purchases.

Budgeted selling and administrative expenses per month follow:

Salary expense (fixed)	$	18,100
Sales commissions		4	% of Sales
Supplies expense		2	% of Sales
Utilities (fixed)	$	1,500
Depreciation on store fixtures (fixed)*	$	4,100
Rent (fixed)	$	4,900
Miscellaneous (fixed)	$	1,300

*The capital expenditures budget indicates that Baird will spend $119,400 on October 1 for store fixtures, which are expected to have a $21,000 salvage value and a two-year (24-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.

Baird 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 $13,000 cash cushion. Prepare a cash budget.

      

October sales are estimated to be $300,000, of which 40 percent will be cash and 60 percent will be credit. The company expects sales to increase at the rate of 20 percent per month. Prepare a sales budget.

	October November December Sales Budget Cash sales Sales on account Total budgeted sales

  

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.

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

   

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 $12,100. Assume that all purchases are made on account. Prepare an inventory purchases budget.

	October November December Inventory Purchases Budget Inventory needed Required purchases (on account)

  

The company pays 80 percent of accounts payable in the month of purchase and the remaining 20 percent in the following month. Prepare a cash payments budget for inventory purchases. (Round your final answers to the nearest whole dollar amounts.)

	October November December Schedule of Cash Payments Budget for Inventory Purchases Payment of current month's accounts payable Payment for prior month's accounts payable Total budgeted payments for inventory

  

Prepare a selling and administrative expenses budget.

	October November December Selling and Administrative Expense Budget Salary expense Sales commissions Supplies expense Utilities Depreciation on store fixtures Rent Miscellaneous Total S&A expenses

   

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.

	October November December Schedule of Cash Payments for S&A Expenses Salary expense Sales commissions Supplies expense Utilities Depreciation on store fixtures Rent Miscellaneous Total payments for S&A expenses

  

Baird 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 $13,000 cash cushion. Prepare a cash budget. (Any repayments/shortage which should be indicated with a minus sign.)

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	Cash Budget October November December Cash available Less: Payments Total budgeted payments Payments minus receipts Financing activity

                                         

Answer 1

Sales Budget
	Oct	Nov	Dec
Sales Budget	300,000.00	360,000.00	432,000.00
Cash Sales	120,000.00	144,000.00	172,800.00
Sales on Account	180,000.00	216,000.00	259,200.00
Total Budgeted Sales	300,000.00	360,000.00	432,000.00

Schedule of expected cash collections
	Oct	Nov	Dec
Current cash sales	120,000.00	144,000.00	172,800.00
Plus collections from A/R	-	120,000.00	144,000.00
Expected cash collections	120,000.00	264,000.00	316,800.00

Inventory purchases budget
	Oct	Nov	Dec
Cost of Goods Sold	210,000.00	252,000.00	302,400.00
Ending inventory(20% of Next Month Sale)	50,400.00	60,480.00	12,100.00
Inventory needed	260,400.00	312,480.00	314,500.00
Begning Inventory	-	50,400.00	60,480.00
Required purchases (on account)	159,600.00	241,920.00	350,780.00

* Cost of Purchase= Beginning Inventory+ Purchases - Ending Inventory

Schedule of Cash Payments Budget for Inventory Purchases
	Oct	Nov	Dec
Payment of current month's accounts payable(80%)	127,680.00	193,536.00	280,624.00
Payment for prior month's accounts payable(20%)	-	31,920.00	48,384.00
Total budgeted payments for inventory	127,680.00	225,456.00	329,008.00

Selling and Administrative Expense Budget
	Oct	Nov	Dec
Salary expense	18,100.00	18,100.00	18,100.00
Sales commissions(4% of Sales)	12,000.00	14,400.00	17,280.00
Supplies expense (2% of sales)	6,000.00	7,200.00	8,640.00
Utilities	1,500.00	1,500.00	1,500.00
Depreciation on store fixtures	4,100.00	4,100.00	4,100.00
Rent	4,900.00	4,900.00	4,900.00
Miscellaneous	1,300.00	1,300.00	1,300.00
Total S&A expenses	47,900.00	51,500.00	55,820.00

Schedule of Cash Payments for S&A Expenses
	Oct	Nov	Dec
Salary expense	18,100.00	18,100.00	18,100.00
Sales commissions(4% of Sales)		12,000.00	14,400.00
Supplies expense (2% of sales)	6,000.00	7,200.00	8,640.00
Utilities		1,500.00	1,500.00
Rent	4,900.00	4,900.00	4,900.00
Miscellaneous	1,300.00	1,300.00	1,300.00
Total payments for S&A expenses	30,300.00	45,000.00	48,840.00

Cash Budget
	Oct	Nov	Dec
Balance, Beginning	53,000.00	13,620.00	13,804.00
Cash Collections	120,000.00	264,000.00	316,800.00
Cash Available	173,000.00	277,620.00	330,604.00
Cash payments:
Cash Payments Budget for Inventory Purchases	127,680.00	225,456.00	329,008.00
Payments for S&A Expenses	30,300.00	45,000.00	48,840.00
Purchase of store fixtures	119,400.00
Total budgeted payments	277,380.00	270,456.00	377,848.00
Payments minus receipts	(104,380.00)	7,164.00	(47,244.00)
Financing activity:
Loan Taken	118,000.00	9,000.00	72,000.00
Repayment
Interest		(2,360.00)	(11,360)
Ending cash	13,620.00	13,804.00	13,395.98

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