Problem 14-23 Preparing a master budget for retaIL COMPANY WITH NO BEGINNING ACC
ID: 2581114 • Letter: P
Question
Problem 14-23 Preparing a master budget for retaIL COMPANY WITH NO BEGINNING ACCOUNT BALANCES.
cAMDEN cOMPANY IS A RETAIL COMPANY THAT SPECIALIZES IN SELLING OUTDOOR CAMPING EQUIPMENT. tHE COMPANY IS CONSIDERING OPENING A NEW STORE ON oCTOBER 1. The company president formed a planning committee to prepare a master budget for the first 3 months of operation. As budget coordinator, you have been assigned the following tasks.
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.
b. The comapny 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 60 percent of sales. The company desire 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 purchase budget.
d. The comapny 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.
e. Budgeted selling and administrative expenses per month follow:
Salary expense (fixed) $9,000
Sales commissions 5% of sales
Supplies expense 2% of sales
Utilities (fixed) $700
Depreciation on store fixtures (fixed)* $2,000
Rent (fixed) $2,400
Miscellaneous (fixed) $600
*The capital expenditures budget indicates that Camden will spend $82,000 on Oct. 1 for store fixtures, which are expected to have a $10,000 salvage value and a three-year (36 month) useful life.
Use this information to prepare a selling and administrative expenses budget.
f. 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 the selling & administrative expenses.
g. Camden 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. Ot pays interest of 1 percent per month in cash on the lst day of the month. To be prudent, the company desire to maintain a $6,000 cash cushion. Prepare a cash budget.
h.Prepare a pro forma income statement for the quarter.
i.Prepare a pro forma balance sheet at the end of the quarter.
Prepare a pro forma statement of cash flows for the quarter.
j.
Explanation / Answer
Camden Company a. Sales budget October November December Sales 125000 135000 145800 b. Schedule of cash receipts October November December Cash sales 50000 54000 58320 Credit sales 75000 81000 87480 Credit sales collected 75000 81000 Cash receipts 50000 129000 139320 c. Inventory purchase budget October November December Cost of goods sold 75000 81000 87480 Ending Inventory 8100 8748 6000 Inventory purchases 8100 648 d. Cash payments budget October November December Payment of accounts payable 5670 454 0 2430 194 Cash payments 5670 2884 194 e. Selling & Adm Exp budget October November December Salary (fixed) 9000 9000 9000 Sales commissions (5% of sales) 6250 6750 7290 Supplies expense (2% of sales) 2500 2700 2916 Utilities (fixed) 700 700 700 Rent (fixed) 2400 2400 2400 Miscellaneous (fixed) 600 600 600 Total 21450 22150 22906 f. Cash payments budget for selling & administrative expenses October November December Utilities 700 700 Sales commissions 6250 6750 7290 Other selling & adm expenses 15200 14700 14916 Total 21450 22150 22906 g. Cash budget October November December Receipts: Sales 50000 129000 139320 Borrowing 65777 66777 67777 Total receipts 115777 195777 207097 Payments: Store Fixtures 82000 Accounts payable 5670 2884 194 Selling & Administrative Expenses 21450 22150 22906 Interest (1%) 658 668 678 Cash cushion 6000 Repayment of borrowing 66777 67777 Total payments 115778 92479 91556 Balance carried forward 0 103299 115542 h. Pro forma Income Statement for the quarter Sales 405800 Cost of sales 243480 Gross margin 162320 Expenses: Selling and administrative expenses 66506 Depreciation 6000 Total expenses 72506 Net profit 89814