Sun Gifts Corporation begins business today, December 31, 2008. Allen Hale, the
ID: 2435297 • Letter: S
Question
Sun Gifts Corporation begins business today, December 31, 2008. Allen Hale, the president is trying to prepare the company's master budget for the first 3 months (January, February, March) of 2009. Since you are her good friend and an accounting student, Mr. Hale asks you to prepare the budget based on the following specifications.REQUIRED:
a. January sales are estimated to be $250, 000 of which 30 percent will be cash and the 70 percent will be credit. The company expects sales to increase at the rate of 10 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 50 percent of the sales. the company desires to maintain a minimum ending inventory equal to 20 percent of the next month's cost of goods sold. The ending inventory of March is expected to be $33, 000. Assume that all purchases are made on the account. Prepare an inventory purchases budget.
d. The company pays 60 percent of the accounts payable in the month of purchase and the remaining 40 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) $25, 000
Sales commission 8 percent of sales
Supplies expense 4 percent of sales
Utilities (fixed) $1, 800
Depreciation on store equipment (fixed)* $5, 000
Rent (fixed) $7, 200
Miscellaneous (fixed) $2, 000
*the capital expenditures budget indicates that Sun will spend $30, 000 on January 1 for store fixtures. The fixtures are expected to have a $50, 000 salvage value and a 5 year (60 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 selling and administrative expenses.
g. The company borrows funds, in increments of $1, 000, and repays them in any amount available on the last day of the month. It pays interest of 1.5 percent per month in cash on the last day of the month. For safety, the company desires to maintain a $50, 000 cash cushion. The company pays its vendors on the last day of the month. 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.
j. Prepare a pro forma statement of the cash flows for the quarters.
Explanation / Answer
a. January sales are estimated to be $250, 000 of which 30 percent will be cash and the 70 percent will be credit. The company expects sales to increase at the rate of 10 percent per month. Prepare a sales budget.
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Sales Budget
Jan'09 Feb'09 Mar'09
Sales Revenue $250,000 $275,000 $302,500
______________________________
Cash Sales 30% $75,000 $82,500 $90,750
Credit Sales 70% $175,000 $192,500 $211,750
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Total Sales Revenue $250,000 $275,000 $302,500
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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.
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Cash Receipts Schedule
Jan'09 Feb'09 Mar'09
Cash Receipts $75,000 $82,500 $90,750
Collection from A/R - $175,000 $192,500
______________________________
Total Cash Receipts $75,000 $257,500 $283,250
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c. The cost of goods sold is 50 percent of the sales. the company desires to maintain a minimum ending inventory equal to 20 percent of the next month's cost of goods sold. The ending inventory of March is expected to be $33, 000. Assume that all purchases are made on the account. Prepare an inventory purchases budget.
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Inventory Purchase Budget
Jan'09 Feb'09 Mar'09
Sales $250,000 $275,000 $302,500
___________________________________
Cost of Goods Sold 50% $125,000 $137,500 $151,250
Ending Inventory 20% $27,500 $30,250 $33,000
____________________________________
Inventory Purchase $152,500 $167,750 $184,250
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d. Cash Payment Budget for Inventory Purchase
Jan'09 Feb'09 Mar'09
Inventory Purchase $152,500 $167,750 $184,250
_______________________________
60% $91,500 $100,650 $110,550
40% - $61,000 $67,100
____________________________________
Total Payments $91,500 $161,650 $177,650
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e. Selling and Administrative expenses budget.
Jan'09 Feb'09 Mar'09
Salary expense(fixed) $25,000 $25,000 $25,000
Sales commission 8% $20,000 $22,000 $24,200
Supplies expense 4% $10,000 $11,000 $12,100
Utilities (fixed) $1,800 $1,800 $1,800
Dep. on Store equipment $5,000 $5,000 $5,000
Dep. on Store fixtures 0 0 0 (see note below)
Rent (fixed) $7,200 $7,200 $7,200
Miscellaneous (fixed) $2,000 $2,000 $2,000
_______________________________
Total Payments $71,000 $74,000 $77,300
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Note : Fixture cost is $30,000 and salvage value is $50,000 so no depreciation. check your question.
f. Cash Payment budget for Selling and Administration expense
Jan'09 Feb'09 Mar'09
Salary expense(fixed) $25,000 $25,000 $25,000
Sales commission 8% - $20,000 $22,000
Supplies expense 4% $10,000 $11,000 $12,100
Utilities (fixed) - $1,800 $1,800
Rent (fixed) $7,200 $7,200 $7,200
Miscellaneous (fixed) $2,000 $2,000 $2,000
_______________________________
Total Payments $44,200 $67,000 $70,100
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On the basis of above schedules prepare cash budget yourself.
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