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

Schedule of Expected Cash Collections Oct Nov Dec Quarter Jan Total sales T 300000 360000 432000 1092000 518400 Cash Sales (40% for cash) S 120000 144000 172800 436800 Credit Sales (T-S) 0 180000 216000 396000 Total Collections 120000 324000 388800 832800 Invemtory Purchases Budget Oct Nov Dec Quarter Budgeted Cost of Goods Sold (70%*sales) $210,000 $252,000 $302,400 $764,400 Add Desired Ending Inventory (20%*next COGS $50,400 $60,480 $12,100 $12,100.0 Total Needs $260,400 $312,480 $314,500 $776,500 Less Beginning Inventory $0 $50,400 $60,480 $0 Required Purcahses $260,400 $262,080 $254,020 $776,500 Schedule of Expected Cash Disbursements- Merchandise Purchases (80% in same month and 20% in next month) Oct Nov Dec Quarter Oct Purchases $208,320 $52,080.0 $260,400 Nov Purcahses $209,664 $52,416.0 $262,080 Dec Purchases $203,216 $203,216 Total Disbursements $208,320 $261,744 $255,632 $725,696 Cash Budget Oct Nov Dec Quarter Beginnning Cash Balance $58,980 $13,000 0 Add Cash Collections 120,000 324,000 388,800 832,800 Total Cash Avail 120,000 382,980 401,800 832,800 Less Cash Disbursements For Inventory $208,320 $261,744 $255,632 $725,696 For Expenses 30300 45000 48840 124140 For store Fixtures 119400 119400 Total Cash Disbursements $358,020 $306,744 $304,472 $969,236 Excess(Deficiency) of Cash ($238,020) $76,236 $97,328 ($136,436) Financing: Borrowings: (283020+13000) $297,000 0 297000 Repayments: ($51,356) ($79,415) -130771 (76236-11880-13000) (97328-4913-13000) Interest: -11880 -4913 -16793 (297000*4%) (297000-51356)*2% Total Financing 297000 -63236 -84328 149436 Ending Cash Balance $58,980 $13,000 $13,000 $13,000 Interest 73000*3%=2190 working Expenses Cash payment Budget for S & A expenses Oct Nov Dec Quarter Saalries & wages 18100 18100 18100 54300 Sales commission (4%*S) 0 12000 14400 26400 Supplies expenses (2%*S) 6000 7200 8640 21840 Utilities 0 1500 1500 3000 Rent expenses 4900 4900 4900 14700 Miselleneous 1300 1300 1300 3900 Total cash expenses 30300 45000 48840 124140 ans h Income statement sales 1092000 Less;: Cost of Good sold $764,400 Gross Margin $327,600 Selling And Administrative expenses 155220 (124140+1500+(432000*4%)+(4100*3) Net operating income $172,380 Interest exp 16793 Net Income $155,587 ans i Balance sheet Current assets Cash 13,000 Accounts receivable 259,200 Inventory 12,100 Total Current assets 284,300 Store Fixtures 119400 Less: Acc dep 12300 Bpook value 107100 Total assets 391,400 Liabilities & stockholder equity Current liabilities Accounts payable 50,804 Line of credit avaialablity(297000-130771) 166,229 Sales commisson payable (432000*4% 17,280 Utilities payable 1,500 Totalbilities 235,813 Equity Retained earnings $155,587 Total Liabilities & stockholder equity $391,400 ans j Statement of cash flow Cash flow from oprating activities Cash payment of S & A exp -124140 Cash payment of int -16793 Cash payment of inventory ($725,696) Cash receipt of custmers 832,800 Net cash flow from operating activities -33829 Cash flow from Investing activities Cash payment for stopre fixtures -119400 Cash flow from financing activities net inflow from line of credit 166,229 Net Increase in cash 13,000 beg bal 0 Ending bal 13,000

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