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Problem 14-23 Preparing a master budget for retail company with no beginning account balances LO 14-2, 14-3, 14-4, 14-5, 14-6

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Munoz 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:

Problem 14-23 Part 1

Required

October sales are estimated to be $340,000, 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 $12,900. Assume that all purchases are made on account. Prepare an inventory purchases budget.

The company pays 70 percent of accounts payable in the month of purchase and the remaining 30 percent in the following month. Prepare a cash payments budget for inventory purchases.

Budgeted selling and administrative expenses per month follow:

Salary expense (fixed)	$	18,900
Sales commissions		4	% of Sales
Supplies expense		2	% of Sales
Utilities (fixed)	$	2,300
Depreciation on store fixtures (fixed)*	$	4,900
Rent (fixed)	$	5,700
Miscellaneous (fixed)	$	2,100

*The capital expenditures budget indicates that Munoz will spend $146,600 on October 1 for store fixtures, which are expected to have a $29,000 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.

Munoz 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 $21,000 cash cushion. Prepare a cash 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.

	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 $0 $0 $0

Answer 1

Schedule of cash payments S&A expenses
	October	November	December	Total
Salary expense	18900	18900	18900	56700
Sales commissions (4% of sales)	0	13600	16320	29920
Supplies expense (2% of sales)	6800	8160	9792	24752
Utilities	0	2300	2300	4600
Rent	4900	4900	4900	14700
Miscellaneous	2100	2100	2100	6300
Total S & A expenses	32700	49960	54312	136972

Cash Budget
	October	November	December	Total
Beginning cash balance	0	21174	21419	0
Add: Collections	136000	367200	440640	943840
Total cash available	136000	388374	462059	943840
Cash disbursements:
For purchases	206584	296453	290060	793097
For S& A expenses	32700	49960	54312	136972
For Capital expenditure	146000			146000
For interest	542	542	502	1586
Total cash disbursements	385826	346955	344874	1077655
Cash Surplus / (Deficit)	-249826	41419	117185	-133815
Minimum cash balance	21000	21000	21000	21000
Excess / (Shortage)	-270826	20419	96185	-154815
Financing:
Borrowing	271000			271000
Repayments		-20000	-96000	-116000
Total Financing	271000	-20000	-96000	155000
Ending Cash Balance	21174	21419	21185	21185