Question

Required: Prepare a master budget for the San Jacinto Emporium Company for the fourth quarter of 2017. The following component budgets must be included: 1. Sales Budget 2. Cost of Goods Sold, Inventory and Purchases Budget 3. Operating Expense Budget 4. Budgeted Income Statement 5. Schedule of Expected Cash Collections 6. Schedule of Expected Cash Disbursements - Merchandise Purchases 7. Schedule of Expected Cash Disbursements - Operating Expenses 8. Combined Cash Budget The San Jacinto Emporium Company is a merchandising business located in Houston, Texas. The owners understand that accurate budgeting will help obtain this goal. The company is completing its third year of operations and is preparing to build its master budget for the fourth quarter of the year. The budget will detail each month’s activity and the total for the quarter. The master budget will be based on the following information: 1. Sales were budgeted at $202,000 for September. Expected sales are $208,000 for October, $207,000 for November, $210,000 for December, and $204,000 for January 2018. The gross margin is 40% of sales. Sales are projected to be 80% in cash and 20% on credit. Credit sales are collected in the month following the sale. The September accounts receivable are a result of the September credit sales. There are no bad debts. 2. Each month’s ending inventory should equal 75% of the next month’s budgeted cost of goods sold. Merchandise Inventory Purchases are paid as follows; 85% of a month’s inventory purchases are paid for in the month of purchase; the remaining 15% is paid for in the following month. The accounts payable at September 30 are the result of September purchases of inventory. 3. Monthly operating expenses are as follows: commissions are 10% of sales; rent is $3,000 per month, other operating expenses (excluding depreciation) are 15% of sales. Assume these expenses are paid in cash each month. Deprecation is $1,500 per month. 4. November equipment purchases cost $8,000, and December equipment purchases cost $3,000. All equipment purchases are paid for in cash in the month purchased. 5. Management would like to maintain a minimum cash balance of at least $50,000 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 in the last month of the quarter. The projected balance sheet as of September 30, is as follows: Assets September 30 Cash $12,000.00 Accounts Receivable 40,400.00 Inventory 93,600.00 Plant & Equipment, net 121,750.00 Total assets $267,750.00 Liabilities & Equity Accounts Payable $18,585.00 Retained Earnings 249,165.00 Total liabilities & equity $267,750.00

**** with Excel work sheet please

Answer 1

Budgeted Cash collections	Sep	Oct	Nov	Dec	Jan
Opening cash balance		12000	50000	69080	85545.53
80% cash collected in month of sale	161600	166400	165600	168000	163200
20% credit, collected in subsequent month of sale		40400	41600	41400	42000
Net cash balance		218800	257200	278480	290745.5

Budgeted Cash Payments on purchase	Sep	Oct	Nov	Dec	Jan
85% paid in same month	0	105697.5	106717.5	104805	26010
15% in subsequent month		18585	18652.5	18832.5	18495
Total cash payments on purchases		124282.5	125370	123637.5	44505

Budgeted Cash Payments on Operating expense	Sep	Oct	Nov	Dec	Jan
Total operating expenses paid in same month	53500	55000	54750	55500	54000
(Commission, rent and other operating expense)
Asset purchase paid in same month		0	8000	3000
Closure of bank loan with interest		0		10796.98
Net cash		39517.5	69080	85545.53	192240.5
Bank loan to bring the balance to 50000		10482.5
Closing balance of cash	12000	50000	69080	85545.53

Inventory budget	Sep	Oct	Nov	Dec	Jan
Opening inventory		93600	93150	94500	91800
Purchase		124350	125550	123300	30600
Cost of goods sold	121200	124800	124200	126000	122400
Closing inventory	93600	93150	94500	91800
75% of subsequent month cost of goods sold	93600	93150	94500	91800	0

Master budget

IV quarter	Sep	Oct	Nov	Dec	Q4	Jan
Sales	202000	208000	207000	210000	625000	204000
Cost of goods sold	121200	124800	124200	126000	375000	122400
(60% of sales)
GP (40% of Sales)	80800	83200	82800	84000	250000	81600
Operating expenses
Commission	20200	20800	20700	21000	62500	20400
(10% of sales)
Rent	3000	3000	3000	3000	9000	3000
Other operating expenses	30300	31200	31050	31500	93750	30600
(15% of sales)
Interest on bank loan		104.825	104.825	104.825	314.475
Depreciation	1500	1500	1500	1500	4500	1500
Total operating expenses	55000	56604.83	56354.83	57104.83	170064.5	55500
Net profit	25800	26595.18	26445.18	26895.18	79935.53	26100