Question

Gibson 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:

October sales are estimated to be $320,000, of which 45 percent will be cash and 55 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 $12,700. 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)	$	18,700
Sales commissions		4	% of Sales
Supplies expense		2	% of Sales
Utilities (fixed)	$	2,100
Depreciation on store fixtures (fixed)*	$	4,700
Rent (fixed)	$	5,500
Miscellaneous (fixed)	$	1,900

*The capital expenditures budget indicates that Gibson will spend $139,800 on October 1 for store fixtures, which are expected to have a $27,000 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.

Gibson 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 $19,000 cash cushion. Prepare a cash budget.

	Cash Budget October November December Beginning cash balance $0 Add: Cash receipts 144,000 Cash available 144,000 0 0 Less: Payments For selling and administrative expenses Purchase of store fixtures Interest expense For inventory purchases Total budgeted payments 0 0 0 Payments minus receipts Surplus (shortage) 144,000 0 0 Financing activity Borrowing (repayment) $144,000 $0 $0

Answer 1

a) SALES BUDGET :
	OCTOBER	NOVEMBER	DECEMBER
SALES BUDGET
Cash sales	144000	172800	207360
Sales on account	176000	211200	253440
TOTAL BUDGETED SALES	320000	384000	460800

B) SCHDULE OF CASH RECEIPTS :
	OCTOBER	NOVEMBER	DECEMBER
SCHDULE OF CASH RECEIPTS
Cash sales	$144,000	$172,800	$207,360
Plus A/R Collection		$176,000	$211,200
Total cash receipts	$144,000	$348,800	$418,560

c) INVENTORY PURCHASE BUDGET :
	OCTOBER	NOVEMBER	DECEMBER
Sales	320000	384000	460800
Cost of goods sold	224000	268800	322560
Add : Desired ending inventory	53760	64512	12700
Total needed	277760	333312	335260
Less : Beginning inventory		-53760	-64512
Purchase	277760	279552	270748

D) SCHDULE OF CASH PAYMENTS :
	OCTOBER	NOVEMBER	DECEMBER
schdule of cash payment
Cash payment for month purchase	$222,208	$223,642	$216,598
Prior month's purchase		$55,552	$55,910
Total cash payment	$222,208	$279,193	$272,508

5.selling and administrative budget
Particulars	October	November	December
salary fixed	$18,700	$18,700	$18,700
sales commission	$12,800	$15,360	$18,432
@4% on sales	(320000*4%)	(384000*4%)	(460800*4%)
supplies @2% on sales	$6,400	$7,680	$9,216
utilies	$2,100	$2,100	$2,100
depreciation on stores	$4,700	$4,700	$4,700
rent	$5,500	$5,500	$5,500
miscelleous	$1,900	$1,900	$1,900
Total selling and administrative expense in $	$52,100	$55,940	$60,548

6. Cash Payments buget for selling and administrative expenses
particulars	October	November	December
salary	$18,700.00	$18,700.00	$18,700.00
sales commission	$0.00	$12,800.00	$15,360.00
supplies	$6,400.00	$7,680.00	$9,216.00
utilies	$0.00	$2,100.00	$2,100.00
stores furniture	$139,800.00	$0.00	$0.00
rent	$5,500.00	$5,500.00	$5,500.00
miscelleous	$1,900.00	$1,900.00	$1,900.00
total cash payments $172,300 $48680 $52776

7. total cash buget
particulars	October	November	December
opening balance	$0	$19,000	$19,000
cash sales bugdet	$144,000	$348,800	$418,560
total cash avaiable	$144,000	$367,800	$437,560
purchase payments	$222,208	$279,194	$272,508
selling and administrative	$172,300	$48,680	$52,776
total payments	$394,508	$327,874	$325,284
Payments- receipts	-$250,508	$39,926	$112,276
Financing activity(borrowings)	$275,000	-$15,426	-$88,085
interest@ 8%	-$5,500	-$5,500	-$5,191
Closing balance	$19,000	$19,000	$19,000