Comprehensive Master(Operating) Budget
Bee Gee Distributors, a wholesale company, is consideringwhether to open a new distribution center near Bowling Green, Ohio.The center would open January 1, 2020. The economic outlook isreasonable, but extensive advance planning is required if such acommitment is to be made. As a part of the planning process, TheBoard of Directors requires a Master (i.e. Operating)Budgetfor the center’s first quarter of operations(i.e.January, February & March of 2020). In order toprepare anybudget, management must make reasonableassumptions about expected sales, inventory levels and cashflows.
SALES BUDGET: “What is theProfit Plan?”
**It all starts with a sales forecast**
a. January sales are estimated to be$400,000 of which $100,000 (25%) will be cash and $300,000 will beon credit. Management expects the above sales pattern tocontinue with an overall grow rate of 10% permonth. Prepare a sales budget.
b. Thecompany expects to collect 100% of the accounts receivable in themonth following the month of the sale. Prepare aschedule of expected cash receipts.
c. Usethe information developed above in requirements a andbto determine the amount of accounts receivable onthe March 31 pro forma balance sheet and the amount of sales on thefirst quarter pro forma income statement.
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PURCHASES BUDGET: “What are our total needs, less whatdo we have”?
d. Costof goods sold will be 60% of sales. Company policy is tobudget an ending inventory balance equal to 25% of the next month’sprojected cost of goods sold. Prepare an inventorypurchases budget.
Note: For March analysis needs,Aprilcost of goods sold is expected to be$314,000.
e. Allinventory purchases are on account. The company pays 70%of accounts payable in the month of purchase. It pays the remaining30% in the following month. Prepare a schedule ofexpected cash payments for inventory purchases.
f. Usethe information developed above in requirements d andeto determine the amount of cost of goods sold on thefirst quarter pro forma income statement and the amounts of endinginventory and accounts payable on the March 31 pro forma balancesheet.
ADMINISTRATIVE & SALESEXPENSE BUDGET:
g. Budgeted monthly selling andadministrative expenses are:
Salary Expense | $24,000 |
SalesCommissions | 5% of Sales |
Supplies Expense | 2% of Sales |
Utilities | $ 1,400 |
Depreciation on NewEquipment (see note below*) | ? |
Rent | $ 3,600 |
Miscellaneous | $ 900 |
*The capitalexpenditures budget shows that Bee Gee must purchase $100,000 ofequipment on January 1 to establish the newcenter. Since the equipment supplier allows a thirty-daytrial period, assume Bee Gee will pay for the equipment in January(i.e. by 1/31). Using Straight-line depreciation, theequipment is expected to have a 10-year useful life and a $10,000salvage value.
SELLINGAND ADMINISTRATIVE EXPENSE BUDGET:
h. Salescommissions and utilities are paid in the month after the month inwhich they are incurred. All other expenses are paid inthe month in which they are incurred. Prepare a scheduleof cash payments for selling and administrative expenses.
Please do E,F,G,H
