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.  

Required:  Your help is needed toconstruct the entire first quarter Master Budget based upon thefollowing two pages of management assumptions:

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.