Question

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 [The following information applies to the questions displayed below.] Rooney 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 $240,000, of which 40 percent will be cash and 60 percent will be credit. The company expects sales to increase at the rate of 25 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 60 percent of sales. The company desires to maintain a minimum ending inventory equal to 10 percent of the next month’s cost of goods sold. However, ending inventory of December is expected to be $13,200. 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) $ 19,200 Sales commissions 5 % of Sales Supplies expense 2 % of Sales Utilities (fixed) $ 2,600 Depreciation on store fixtures (fixed)* $ 5,200 Rent (fixed) $ 6,000 Miscellaneous (fixed) $ 2,400 *The capital expenditures budget indicates that Rooney will spend $219,200 on October 1 for store fixtures, which are expected to have a $32,000 salvage value and a three-year (36-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. Rooney 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 1 percent per month in cash on the last day of the month. To be prudent, the company desires to maintain a $24,000 cash cushion. Prepare a cash budget.

Answer 1

Sales Budget
	October	November	December
Sales	240,000	300,000	375,000
Cash Sales(40%)	96,000	120,000	150,000
Credit Sales (60%)	144,000	180,000	225,000

Cash Collection Budget
	October	November	December
Cash sales	96,000	120,000	150,000
Collection from Credit sales	-	144,000	180,000
Expected Cash Collection	96,000	264,000	360,000

Inventory Purchase Budget
	October	November	December
Cost of goods Sold (60 % of Sales)	144,000	180,000	225,000
Ending inventory	18,000	22,500	13,200
Total Required	162,000	202,500	238,200
Beginning Inventory	-	18,000	22,500
Inventory Purchase	162,000	184,500	215,700

Cash Payaments for Inventory Purchase
	October	November	December
70 % of Current Month	113,400	129,150	150,990
30 % of last Month	-	48,600	55,350
Expected Cash Payaments for Inventory Purchase	113,400	177,750	206,340

Selling and Administrative expenses budget
	October	November	December
Salaries Expenses	19,200	19,200	19,200
Sales Commission (5 % of sales)		12,000	15,000
Supplies expenses	4,800	6,000	7,500
Utility Expenses		2,600	2,600
Rent Expenses	6,000	6,000	6,000
Miscellaneous Expenses	2,400	2,400	2,400
Total Cash Payaments for S & A Expenses	32,400	48,200	52,700

Cash Payment Budget
	October	November	December
Beginning cash Balance	-	24,200	24,000
Plus: Cash collections	96,000	264,000	360,000
Total Cash Available	96,000	288,200	384,000
Less: Cash payments
Inventory Purchase	113,400	177,750	206,340
Total Cash Payaments for S & A Expenses	32,400	48,200	80,600
For store fixtures	219,000
Total Cash Payment	145,800	225,950	286,940
Surplus (Deficit)	(49,800)	62,250	97,060
Financing:
Borrowing	74,000
Repayment		(37,510)
Interest		(740)
Total financing	74,000	(38,250)	-
Cash Balance, Ending	24,200	24,000	97,060

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