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

Question

Choice 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 $280000 of which 60 percent will be cash and the remainder will be on credit. The company expects all sales to increase at the rate of 25 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 80 percent of sales. The company desires to maintain a minimum ending inventory equal to 30 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 20 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): $ 21500

Sales commissions:  3 percent of Sales

Supplies expense:   1 percent of Sales

Utilities (fixed): $2300              

Depreciation on store equipment (fixed)*:   You compute    

Rent (fixed) $ 8000          

Miscellaneous (fixed): $ 1250      

*The capital expenditures budget indicates that the company will spend $450000 on October 1 for store fixtures, which are expected to have a $48000 residual value and a 48 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.

Choice issued stock for 300000 on October 5. A dividend of $40000 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 1percent per month in cash on the last day of the month. To be prudent, the company desires to maintain a $10000 cash cushion.   

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

Income statement

Input expenses as negatives. Use a minus sign in front of the number.

Balance Sheet

Enter any contra-assets as negative numbers. Use a minus sign.

a. Sales Budget October November December Total-Qtr Cash sales Sales on account    Total budgeted sales

Explanation / Answer

Note: Beginning inventory for October is taken is '0' since the store is opening on October 1. Please confirm with the check figures which have not been provided with the question.

Per Chegg guidelines, 4 sub-parts have been answered.

a. Sales Budget October November December Total-Qtr Cash sales 168000 210000 262500 640500 Sales on account 112000 140000 175000 427000 Total budgeted sales 280000 350000 437500 1067500 b. Schedule of Cash Receipts October November December Total-Qtr Current cash sales 168000 210000 262500 640500 Plus collections from A/R 0 112000 140000 252000 Total collections 168000 322000 402500 892500 c. Inventory Purchases Budget October November December Total-Qtr Budgeted cost of goods sold 224000 280000 350000 854000 Plus desired ending inventory 84000 105000 60000 60000 Inventory needed 308000 385000 410000 914000 Less beginning inventory 0 84000 105000 0 Required purchases (on account) 308000 301000 305000 914000 d. Cash payments for inventory October November December Total-Qtr Payment of current month's A/P 61600 60200 61000 182800 Payment of prior month's A/P 0 246400 240800 487200 Total budgeted payments 61600 306600 301800 670000

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