Preparing a master budget for retail company with no beginning account balances
ID: 2574399 • Letter: P
Question
Preparing a master budget for retail company with no beginning account balances Problem 7-23A LO 7-2, 7-3, 7-4, 7-5,7-6 Camden 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 co- ordinator, you have been assigned the following tasks: CHECK FIGURES c. Dec. purchases: $84,732 g. Nov. surplus before financing activities: $30,486 Required Round all computations to the nearest whole dollar a. October sales are estimated to be $125,000, of which 40 percent will be cash and 60 percent will be credit. The company expects sales to increase at the rate of 8 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 $6,000. Assume that all purchases are made on account. Prepare an inventory purchases budget. b. c. d. 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 336 Chapter7 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) The capital expenditures budget indicates that Camden will spend $82,000 on October 1 for store fixtures, which are expected to have a $10,000 salvage value and a three-year (36-month) useful life. $9,000 5% of Sales 2% of Sales $700 $2,000 $2,400 $600 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 ad ministrative expenses f.Explanation / Answer
Answer
October
November
December
Sales
125000
[125000 + 8%] 135000
[135000 + 8%] 145800
Cash Sales 40%
50000
54000
58320
Credit Sale 60%
75000
81000
87480
Working
October
November
December
A
Cash Sales
50000
54000
58320
B
Credit Sale
75000
81000
87480
C
Cash collected from receivables
0
75000
81000
D=A+C
Cash receipts
50000
129000
139320
October
November
December
Sales
125000
135000
145800
Cost of Goods Sold [A=60% of sales]
75000
81000
87480
Ending Inventory required [B=10% of next month’s COGS]
8100
8748
6000
Total requirement [A+B]
83100
89748
93480
(Less) Opening inventory
0
8100
8748
Required to be purchased $
83100
81648
84732
October
November
December
Credit purchases
83100
81648
84732
Cash paid for-------
October purchase
58170
24930
November purchase
57154
24494
December purchase
59312
Total cash payments for purchase
58170
82084
83807
October
November
December
Salary
9000
9000
9000
Sales Commission 5% of Sales
6250
6750
7290
Supplies exp 2% of Sales
2500
2700
2916
Utilities
700
700
700
Depreciation
2000
2000
2000
Rent
2400
2400
2400
Miscellaneous
600
600
600
Total expenses
23450
24150
24906
Capital expenditure will not be considered as ‘Selling & Administrative expense’
Depreciation is not considered as it is a NON-CASH Item
October
November
December
Salary
9000
9000
9000
Sales Commission 5% of Sales
0
6250
6750
Supplies exp 2% of Sales
2500
2700
2916
Utilities
0
700
700
Depreciation
0
0
0
Rent
2400
2400
2400
Miscellaneous
600
600
600
Total cash paid for Selling & Administrative expenses
14500
21650
22366
October
November
December
Sales
125000
[125000 + 8%] 135000
[135000 + 8%] 145800
Cash Sales 40%
50000
54000
58320
Credit Sale 60%
75000
81000
87480