Admire is a retail company that sells specialized gardening products. The compan

Question

Admire is a retail company that sells specialized gardening products. The company is considering opening a new store on October 1, Year1. As budget coordinator, you have been asked to prepare a master budget for the first 3 months of the company’s operation. You have gathered the following information:

October sales are estimated to be $300000 of which 45 percent will be cash and the remainder will be on credit. The company expects all sales to increase at the rate of 20 percent per month for November and December. Sales in January Year 2 are expected to be $250000.

The company expects to collect 100 percent of the accounts receivable generated by credit sales in the month following the sale.

Prepare a sales budget and a schedule of cash receipts using these facts and your excel template. Check your answers here before moving to the next part, by completing the cells requested in the chart below.

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. (Ending inventory for December is based on budgeted January Year2 sales.)

Assume that all inventory purchases are made on account (on credit). The company pays 80 percent of accounts payable in the month of purchase and the remaining amount in the following month.

In excel, prepare an inventory purchases budget and a cash payments budget for inventory purchases. Use the check figures below before you continue.

Budgeted selling and administrative expenses per month follow.

Salary expense (fixed): $ 28200

Sales commissions:  5 percent of Sales

Supplies expense:   2 percent of Sales

Utilities (fixed): $2600              

Depreciation on store equipment (fixed)*:   You compute    

Rent (fixed) $ 11000          

Miscellaneous (fixed): $ 3500      

*The capital expenditures budget indicates that the company will spend $182400 on October 1 for store fixtures, which are expected to have a $24000 residual value and a 36 month useful life.

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.

In excel, prepare the selling and administrative expenses budget and the cash payments budget for selling and administrative expenses. Check the key figures below.

Admire issued common stock for $50000 on October 5.

A dividend of $28000 was paid on December 15.

The company borrows and repays funds in increments of $1,000 on the last day of the month. 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 $16000 cash cushion.   

Prepare a cash budget on your excel template. Check key figure below.

Explanation / Answer

a. Sales Budget October November December Total-Qtr Cash sales $1,35,000 $1,62,000 $1,94,400 $4,91,400 Sales on account $1,65,000 $1,98,000 $2,37,600 $6,00,600 Total budgeted sales $3,00,000 $3,60,000 $4,32,000 $10,92,000 b. Schedule of Cash Receipts October November December Total-Qtr Current cash sales $1,35,000 $1,62,000 $1,94,400 $4,91,400 Plus collections from A/R - $1,65,000 $1,98,000 $3,63,000 Total collections $1,35,000 $3,27,000 $3,92,400 $8,54,400 c. Inventory Purchases Budget October November December Total-Qtr Budgeted cost of goods sold $1,80,000 $2,16,000 $2,59,200 $6,55,200 60%of current sale Plus desired ending inventory $21,600 $25,920 $15,000 $62,520 10%of the next month sale Inventory needed $1,80,000 $2,16,000 $2,59,200 $6,55,200 Less beginning inventory $0 $21,600 $25,920 $47,520 Required purchases (on account) $2,01,600 $2,20,320 $2,48,280 $6,70,200 d. Cash payments for inventory October November December Total-Qtr Payment of current month's A/P $1,61,280 $1,76,256 $1,98,624 $5,36,160 80% paid in the month of purchase Payment for prior month's A/P $40,320 $44,064 $84,384 20% in the next month Total budgeted payments $1,61,280 $2,16,576 $2,42,688 $6,20,544 e. Selling and Admin.Expense Budget October November December Total-Qtr Salary expense $28,200 $28,200 $28,200 $84,600 Sales commissions $15,000 $18,000 $21,600 $54,600 5%on sale Supplies expense $6,000 $7,200 $8,640 $21,840 2% on sale Utilities $2,600 $2,600 $2,600 $7,800 Depreciation on store fixtures $4,400 $4,400 $4,400 $13,200 Rent $11,000 $11,000 $11,000 $33,000 Miscellaneous $3,500 $3,500 $3,500 $10,500 Total S&A expenses $70,700 $74,900 $79,940 $2,25,540 Capital value                         1,82,400 Residual                    24,000 Balance                         1,58,400 Depreciation permonth 4400 f. Cash payments for S&A October November December Total-Qtr Salary expense $28,200 $28,200 $28,200 $84,600 Sales commissions $15,000 $18,000 $33,000 Paid in the next month Supplies expense $6,000 $7,200 $8,640 $21,840 Utilities     $2,600 $2,600 $5,200 Paid in the next month Depreciation on store fixtures $4,400 $4,400 $4,400 $13,200 Rent $11,000 $11,000 $11,000 $33,000 Miscellaneous $3,500 $3,500 $3,500 $10,500 Total payments for S&A expenses $53,100 $71,900 $76,340 $2,01,340 g. Cash Budget October November December Total-Qtr Beginning cash balance $0 $16,620 $16,684 $33,304 Issuance of stock $50,000 $0 $50,000 Collections from customers $1,35,000 $3,27,000 $3,92,400 $8,54,400 Cash available $1,85,000 $3,43,620 $4,09,084 $9,37,704 Less payments $0    For inventory purchases $1,61,280 $2,16,576 $2,42,688 $6,20,544    For S&A expenses $53,100 $71,900 $76,340 $2,01,340    Purchase of store fixtures $0     Pay dividend $28,000 $28,000    Interest expense $460 $80 $540 1% on borrow money Total budgeted payments $2,14,380 $2,88,936 $3,47,108 $8,50,424 Cash balance before borrow/repay -$29,380 $54,684 $61,976 $87,280 Financing activity $46,000 $8,000 $54,000    Borrowing (repayment) $0 $46,000 $8,000 $54,000 Ending cash balance $16,620 $16,684 $53,976 $87,280

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