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In: Accounting

San Marcos Collectibles is a merchandising business located downtown in San Marcos, Texas. The owners are...

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:

Assets

June 30

Cash

$50,000

Accounts Receivable

71,500

Inventory

52,920

Plant & Equipment, net

105,000

Total assets

$279,420

Liabilities & Equity

Accounts Payable

$36,400

Retained Earnings

243,020

Total liabilities & equity

$279,420

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


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