Preparing a master budget for retail company with no beginning account balances:
Prepare a selling and administrative expenses budget and a cash payments budget for selling and administrative expenses.
Haas Company is a retail company that specializes in selling outdoor camping equipment. The company is considering opening a new store on October 1, 2015. 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 task below:
October sales are estimated to be $250,000 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. The company expects to collect 100 percent of the accounts receivable generated by credit sales in the month following the sale.
Item October November December
Sales Budget Cash
Sale 100000 108000 116640
Sale on account 150000 162000 174960
Total Budgeted Sale 250000 270000 291600
Schedule of cash receipts
Current cash sale 100000 108000 116640
Collection from accounts receivable - 150000 162000
Total collection 100000 258000 278640
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. Ending inventory of December is expected to be $12,000. The company pays 70 percent of accounts payable in the month of purchase and the remaining 30 percent in the following month. Assume that all purchases are made on account.
Budgeted selling and administrative expenses per month follow:
Salary expense (fixed) $ 18,000
Sales commissions 5 percent of Sales
Supplies expense 2 percent of Sales
Utilities (fixed) $ 1,400
Depreciation on store fixtures (fixed)* $ 4,000
Rent (fixed) $ 4,800
Miscellaneous (fixed) $ 1,200
The capital expenditures budget indicates that Haas will spend $164,000 on October 1 for store fixtures, which are expected to have a $20,000 salvage value and a three-year (36-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. Prepare a selling and administrative expenses budget and a cash payments budget for selling and administrative expenses. (Round answers to nearest whole dollar amount.)
October November December
selling and administrative expense budget
salary expense
sales commissions
supplies expense
utilities depreciation on store fixtures
rent
miscellaneous
total s&a expenses
schedule of cash payments for s&a expenses