Developing a Master Budget for a Merchandising Organization Peyton Department St

Question

Developing a Master Budget
for a Merchandising Organization
Peyton Department Store prepares budgets quarterly. The following information is available for use in planning the second quarter budgets for 2010.

Actual and forecasted sales for selected months in 2010 are as follows:

Monthly operating expenses are as follows:

Cash dividends of $17,000 are declared during the third month of each quarter and are paid during the first month of the following quarter. Operating expenses, except insurance, rent, and depreciation are paid as incurred. Rent is paid during the following month. The prepaid insurance is for five more months. Cost of goods sold is equal to 50 percent of sales. Ending inventories are sufficient for 120 percent of the next month's sales. Purchases during any given month are paid in full during the following month. All sales are on account, with 50 percent collected during the month of sale, 40 percent during the next month, and 10 percent during the month thereafter. Money can be borrowed and repaid in multiples of $1,000 at an interest rate of 12 percent per year. The company desires a minimum cash balance of $2,000 on the first of each month. At the time the principal is repaid, interest is paid on the portion of principal that is repaid. All borrowing is at the beginning of the month, and all repayment is at the end of the month. Money is never repaid at the end of the month it is borrowed.

(a) Prepare a cash budget for each month of the second quarter ending June 30, 2010. Include budgeted borrowings and repayments.

PEYTON DEPARTMENT STORE
Balance Sheet
March 31, 2010 Assets Liabilities and Stockholders' Equity Cash $2,000 Accounts payable $26,000 Accounts receivable 25,000 Dividends payable 17,000 Inventory 30,000 Rent payable 1,000 Prepaid Insurance 2,000 Stockholders' equity 40,000 Fixtures 25,000 Total assets $84,000 Total liabilities and equity $84,000

Explanation / Answer

28780

Payton Department Store Monthly Cash Budget Quarter Ending Jun30,2010 April May June Total Cash Balance Begning 2000 2890 28780 33670 Receips 46000 54000 64000 164000 Disbursements 45100 28100 28100 101300 Excess Receipts Over Disb.. 900 25900 35900 62700 Balance Before Borrowing 2900 28790 64680 96370 Borrowing 1000 1000 1000 3000 Loan Repayment with interest 1010 1010 1010 3030 Cash Balance at end 2890

28780

64670 96340

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