In: Accounting
San Marcos Collectibles is a merchandising business located downtown in San Marcos, Texas. The owners are Texas State alumni and they would like to maximize their profits. They understand that accurate budgeting will help obtain this goal. The company is completing its second year of operations and is preparing to build its master budget for the third quarter. The budget will detail each month’s activity and the total for the quarter. The master budget will be based on the following information: a. Sales were budgeted at $130,000 for June. Expected sales are $126,000 for July, $121,000 for August, $110,000 for September, and $114,000 for October. b. The gross margin is 30% of sales. c. Sales are projected to be 45% for cash and 55% on credit. Credit sales are collected in the month following the sale. The June accounts receivable are a result of the June credit sales. There are no bad debts. d. Each month’s ending inventory should equal 60% of the next month’s budgeted cost of goods sold. e. Merchandise Inventory Purchases are paid as follows; 60% of a month’s inventory purchases are paid for in the month of purchase; the remaining 40% is paid for in the following month. The accounts payable at June 30 are the result of June purchases of inventory. f. Monthly operating expenses are as follows: commissions are 5% of sales; rent is $3,500 per month, other operating expenses (excluding depreciation) are 8% of sales. Assume these expenses are paid monthly. Deprecation is $1,000 per month. g. Equipment costing $5,000 will be purchased for cash in August. All equipment purchases are paid for in cash in the month purchased. h. Income tax is estimated to be 12% of operating income. Estimated taxes are accrued each month and paid in cash at the end of each quarter. i. Management established a new policy this quarter, and would like to maintain a minimum cash balance of at least $100,000 at the end of each month. The company has an agreement with a local bank that allows them to borrow in increments of $1,000 at the end of each month. The interest rate on these loans is 1% per month and for simplicity we will assume that interest is not compounded (only paying interest on the principal). They would, as far as it is able, repay the loan plus accumulated interest at the end of the quarter. j. The balance sheet as of June 30, is as follows:
|
July | August | September | Total | |||||||||||||||||||||||
Budgeted Sales Revenue | |||||||||||||||||||||||||||
Cash Sales | |||||||||||||||||||||||||||
Credit Sales | |||||||||||||||||||||||||||
Total Sales Revenue | |||||||||||||||||||||||||||
Budgeted Cost of Goods Sold | |||||||||||||||||||||||||||
Desired Ending Inventory | |||||||||||||||||||||||||||
Total Needs | |||||||||||||||||||||||||||
Beginning Inventory | |||||||||||||||||||||||||||
Required purchases | |||||||||||||||||||||||||||
Variable Operating Expenses: | |||||||||||||||||||||||||||
Commissions | |||||||||||||||||||||||||||
Other Operating Expenses | |||||||||||||||||||||||||||
Total Variable Operating Expenses | |||||||||||||||||||||||||||
Fixed Operating Expenses: | |||||||||||||||||||||||||||
Rent | |||||||||||||||||||||||||||
Depreciation | |||||||||||||||||||||||||||
Total Fixed Operating Expenses | |||||||||||||||||||||||||||
Total Operating Expense | |||||||||||||||||||||||||||
Sales | |||||||||||||||||||||||||||
Cost of Goods Sold | |||||||||||||||||||||||||||
Gross Margin | |||||||||||||||||||||||||||
Operating Expenses | |||||||||||||||||||||||||||
Operating Income | |||||||||||||||||||||||||||
Interest Expense | |||||||||||||||||||||||||||
Income Taxes | |||||||||||||||||||||||||||
Net Income | |||||||||||||||||||||||||||
Cash Sales | |||||||||||||||||||||||||||
Credit Sales | |||||||||||||||||||||||||||
Total Collections | |||||||||||||||||||||||||||
June Merchandise Purchases | |||||||||||||||||||||||||||
July Merchandise Purchases | |||||||||||||||||||||||||||
Aug Merchandise Purchases | |||||||||||||||||||||||||||
Sept Merchandise Purchases | |||||||||||||||||||||||||||
Total Payments - Merchandise Inventory Purchases | |||||||||||||||||||||||||||
Commissions | |||||||||||||||||||||||||||
Rent | |||||||||||||||||||||||||||
Other Operating Expenses | |||||||||||||||||||||||||||
Total Payments - Operating Expenses | |||||||||||||||||||||||||||
Beginning Cash Balance | |||||||||||||||||||||||||||
Cash Collections | |||||||||||||||||||||||||||
Cash Available | |||||||||||||||||||||||||||
Cash Payments: | |||||||||||||||||||||||||||
Merchandise Inventory Purchases | |||||||||||||||||||||||||||
Operating Expenses | |||||||||||||||||||||||||||
Equipment Purchase | |||||||||||||||||||||||||||
Income Taxes | |||||||||||||||||||||||||||
Ending Cash Balance before Financing | |||||||||||||||||||||||||||
New Borrowings | |||||||||||||||||||||||||||
Debt Repayments | |||||||||||||||||||||||||||
Interest Payments | |||||||||||||||||||||||||||
Ending Cash Balance after Financing | |||||||||||||||||||||||||||
Cash | |||||||||||||||||||||||||||
Accounts Receivable | |||||||||||||||||||||||||||
Inventory | |||||||||||||||||||||||||||
Plant & Equipment, net | |||||||||||||||||||||||||||
Total assets | |||||||||||||||||||||||||||
Accounts Payable | |||||||||||||||||||||||||||
Retained Earnings | |||||||||||||||||||||||||||
Total liabilities & equity excel format |
|