Required Information Problem 14-23 Preparing a master budget for retail company

Question

Required Information 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.] Balrd Company is a retall 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 a. October sales are estimated to be $300,000, 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. b. 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. c. 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 $12,100. Assume that all purchases are made on account. Prepare an Inventory purchases budget. d. The company pays 80 percent of accounts payable in the month of purchase and the remaining 20 percent in the following month. Prepare a cash payments budget for Inventory purchases. e. Budgeted selling and administrative expenses per month follow: Salary expense (fixed) Sales commissions Supplies expense Utilities (fixed) Depreciation on store fixtures (fixed)* Rent (fixed) Miscellaneous (fixed) $18, 10e 4 % of Sales 2% of Sales $1,500 $ 4,188 $ 4,90e $ 1,388 *The capital expenditures budget indicates that Baird will spend $119,400 on October 1 for store fixtures, which are expected to have a $21,000 salvage value and a two-year (24-month) useful life. Use this information to prepare a selling and administrative expenses budget. 1. 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. g. Balrd 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 $13,000 cash cushion. Prepare a cash budget.

Explanation / Answer

October November December Sales Budget Cash Sales 120000 144000 172800 Sales on account 180000 216000 259200 total budgeted sales 300000 360000 432000 October November December Schedule of Cash receipts Current cash sales 120000 144000 172800 plus collections from A/R 0 180,000 216000 total collections 120000 324000 388800 October November December inventory purchase Budget Budgeted cost of goods sold 210000 252000 302400 plus:Desired ending inventory 50400 60480 12,100 inventory needed 260400 312480 314500 less:Beginning inventory -42000 -50,400 -60,480 required purchases(on account) 218400 262080 254020 October November December Schedule of Cash Payments Budget for Inventory Purchases Payment of current months accounts payable 174720 209664 203216 payment for prior month's account payable 43680 52416 total Budgeted payments for inventory 174720 253344 255632

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