Problem 1423 Preparing a master budget for retail company wi

Problem 14-23 Preparing a master budget for retail company with no beginning account balances LO 14-2, 14-3, 14-4, 14-5, 14-6

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Rooney 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:

Problem 14-23 Part 1

Required

October sales are estimated to be $240,000, of which 40 percent will be cash and 60 percent will be credit. The company expects sales to increase at the rate of 25 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 $13,200. Assume that all purchases are made on account. Prepare an inventory purchases budget.

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.

Budgeted selling and administrative expenses per month follow:

*The capital expenditures budget indicates that Rooney will spend $219,200 on October 1 for store fixtures, which are expected to have a $32,000 salvage value and a three-year (36-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.

Rooney 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 1 percent per month in cash on the last day of the month. To be prudent, the company desires to maintain a $24,000 cash cushion. Prepare a cash budget.

Salary expense (fixed)	$	19,200
Sales commissions		5	% of Sales
Supplies expense		2	% of Sales
Utilities (fixed)	$	2,600
Depreciation on store fixtures (fixed)*	$	5,200
Rent (fixed)	$	6,000
Miscellaneous (fixed)	$	2,400

Solution

Please hit LIKE button if this helped. For any further explanation, please put your query in comment, will get back to you. 1. Sales Budget October November December Total Estimated Sales 240000 240000 240000*125% 300000 300000 300000*125% 375000 375000 Estimated Total Sales 240000 300000 375000 915000 2. Schedule of Cash Receipts October November December Total Cash Sale 96000 120000 150000 366000 Credit Sale Collected for: October 240000*60% 144000 144000 November 300000*60% 180000 180000 Estimated Collection 96000 264000 330000 690000 3. Inventory Purchase Budget October November December Total Cost of Goods Sold 60% of Sale 144000 180000 225000 549000 Add: Desired Inventory 10% of Next Month COGS 18000 22500 13200 13200 Cost of Goods Available for Sale 162000 202500 238200 562200 Less: beginning Inventory 0 18000 22500 0 Purchases 162000 184500 215700 562200 4. Cash Payment Budget for Purchases October November December Total Payment made for: October Purchase 113400 48600 162000 November Purchase 129150 55350 184500 December Purchase 150990 150990 Total Estimated Payment 113400 177750 206340 497490 5. Selling and Administrative Exp Budget October November December Total Salary Expense 19200 19200 19200 57600 Sales Commission 12000 15000 18750 45750 Supplie Expense 4800 6000 7500 18300 Utilities 2600 2600 2600 7800 Depreciation 5200 5200 5200 15600 Rent 6000 6000 6000 18000 Miscellaneous 2400 2400 2400 7200 Total Selling and Admin Expense 52200 56400 61650 170250 6. Cash payment budget for Selling and Admin October November December Total Salary Expense 19200 19200 19200 57600 Sales Commission 0 12000 15000 27000 Supplie Expense 4800 6000 7500 18300 Utilities 0 2600 2600 5200 Depreciation Non Cash 0 0 0 0 Rent 6000 6000 6000 18000 Miscellaneous 2400 2400 2400 7200 Estimated Cash Payment for Selling and Admin 32400 48200 52700 133300 7. Cash Budget October November December Total Beginning Balance 0 24040 24000 0 add: Cash Collection from receivables 96000 264000 330000 690000 Cash Available A 96000 288040 354000 690000 Cash payment for: Purchases 113400 177750 206340 497490 Selling and Admin Expense 32400 48200 52700 133300 Capital Expenditure 219200 219200 Cash Payment B 365000 225950 259040 849990 Desired Cash Balance C 24000 24000 24000 24000 Excess/(deficit) Cash balance A-B-C -293000 38090 70960 -183990 Financing: Borrowing D 296000 296000 Interest E 2960 2960 2609 8529 Repayment F 35130 68351 103481 Ending Balance A-B+D-E-F 24040 24000 24000 24000