Gibson Company is a retail company that specializes in selli

Gibson 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 coordinator, you have been assigned the following tasks:

October sales are estimated to be $320,000, of which 45 percent will be cash and 55 percent will be credit. The company expects sales to increase at the rate of 20 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 70 percent of sales. The company desires to maintain a minimum ending inventory equal to 20 percent of the next month’s cost of goods sold. However, ending inventory of December is expected to be $12,700. Assume that all purchases are made on account. Prepare an inventory purchases budget.

The company pays 80 percent of accounts payable in the month of purchase and the remaining 20 percent in the following month. Prepare a cash payments budget for inventory purchases.

Budgeted selling and administrative expenses per month follow:

*The capital expenditures budget indicates that Gibson will spend $139,800 on October 1 for store fixtures, which are expected to have a $27,000 salvage value and a two-year (24-month) useful life.

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 administrative expenses.

Gibson 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. It pays interest of 2 percent per month in cash on the last day of the month. To be prudent, the company desires to maintain a $19,000 cash cushion. Prepare a cash budget.

Salary expense (fixed)	$	18,700
Sales commissions		4	% of Sales
Supplies expense		2	% of Sales
Utilities (fixed)	$	2,100
Depreciation on store fixtures (fixed)*	$	4,700
Rent (fixed)	$	5,500
Miscellaneous (fixed)	$	1,900

Solution

a) SALES BUDGET : OCTOBER NOVEMBER DECEMBER SALES BUDGET Cash sales 144000 172800 207360 Sales on account 176000 211200 253440 TOTAL BUDGETED SALES 320000 384000 460800 B) SCHDULE OF CASH RECEIPTS : OCTOBER NOVEMBER DECEMBER SCHDULE OF CASH RECEIPTS Cash sales $144,000 $172,800 $207,360 Plus A/R Collection $176,000 $211,200 Total cash receipts $144,000 $348,800 $418,560 c) INVENTORY PURCHASE BUDGET : OCTOBER NOVEMBER DECEMBER Sales 320000 384000 460800 Cost of goods sold 224000 268800 322560 Add : Desired ending inventory 53760 64512 12700 Total needed 277760 333312 335260 Less : Beginning inventory -53760 -64512 Purchase 277760 279552 270748 D) SCHDULE OF CASH PAYMENTS : OCTOBER NOVEMBER DECEMBER schdule of cash payment Cash payment for month purchase $222,208 $223,642 $216,598 Prior month\'s purchase $55,552 $55,910 Total cash payment $222,208 $279,193 $272,508 5.selling and administrative budget Particulars October November December salary fixed $18,700 $18,700 $18,700 sales commission $12,800 $15,360 $18,432 @4% on sales (320000*4%) (384000*4%) (460800*4%) supplies @2% on sales $6,400 $7,680 $9,216 utilies $2,100 $2,100 $2,100 depreciation on stores $4,700 $4,700 $4,700 rent $5,500 $5,500 $5,500 miscelleous $1,900 $1,900 $1,900 Total selling and administrative expense in $ $52,100 $55,940 $60,548 6. Cash Payments buget for selling and administrative expenses particulars October November December salary $18,700.00 $18,700.00 $18,700.00 sales commission $0.00 $12,800.00 $15,360.00 supplies $6,400.00 $7,680.00 $9,216.00 utilies $0.00 $2,100.00 $2,100.00 stores furniture $139,800.00 $0.00 $0.00 rent $5,500.00 $5,500.00 $5,500.00 miscelleous $1,900.00 $1,900.00 $1,900.00 total cash payments $172,300 $48680 $52776 7. total cash buget particulars October November December opening balance $0 $19,000 $19,000 cash sales bugdet $144,000 $348,800 $418,560 total cash avaiable $144,000 $367,800 $437,560 purchase payments $222,208 $279,194 $272,508 selling and administrative $172,300 $48,680 $52,776 total payments $394,508 $327,874 $325,284 Payments- receipts -$250,508 $39,926 $112,276 Financing activity(borrowings) $275,000 -$15,426 -$88,085 interest@ 8% -$5,500 -$5,500 -$5,191 Closing balance $19,000 $19,000 $19,000