Question
4. Prepare a quarterly budgeted income statement (Hint: cost of goods sold will be based on a percent of sales rather than a cost per
4. Prepare a quarterly budgeted income statement (Hint: cost of goods sold will be based on a percent of sales rather than a cost per unit.)
5. Prepare a quarterly capital expenditure budget
Merchandising Company Master Budget. Big Apple Sporting Goods is a retail store that sells a variety of sports equipment. The companys fiscal year ends on December 31. Information to be used for the operating budget this coming year follows.
Sales and Merchandise Purchases Budget Information
Sales for this coming year ending December 31 are expected to be as follows:
First quarter | $600,000 |
Second quarter | $650,000 |
Third quarter | $660,000 |
Fourth quarter | $800,000 |
Cost of goods sold is 40 percent of sales (this is the first line of the merchandise purchases budget). Merchandise inventory is maintained at a level equal to 20 percent of the next quarters cost of goods sold. Merchandise inventory at the end of the fourth quarter budget period is estimated to be $55,000.
Selling and Administrative Budget Information
Management estimates all selling and administrative costs are fixed.
Quarterly selling and administrative cost estimates for the coming year are
Salaries | $150,000 |
Rent | $ 25,000 |
Advertising | $ 40,000 |
Depreciation | $ 18,000 |
Other | $ 12,000 |
Capital Expenditure and Cash Budget Information
The company plans to pay cash for property, plant, and equipment totaling $35,000 at the end of the fourth quarter. This purchase will not affect depreciation expense for the coming year.
The company expects to collect 70 percent of sales in the quarter of sale and 30 percent the quarter following the sale. Accounts receivable at the end of last year totaled $200,000, all of which will be collected during the first quarter of this coming year.
All inventory purchases are on credit. The company expects to pay 80 percent of inventory purchases in the quarter of purchase and 20 percent the following quarter. Accounts payable at the end of last year totaled $68,000, all of which will be paid during the first quarter of this coming year.
The cash balance at the beginning of this coming year is expected to be $90,000.
Budgeted Balance Sheet Information
Assume 30 percent of fourth quarter budgeted sales will be collected in full the following year (this represents accounts receivable at the end of the fourth quarter).
Expected account balances at the end of the fourth quarter are
Property, plant, and equipment (net) | $120,000 |
Common stock | $175,000 |
Actual retained earnings at the end of the last year totaled $252,000, and no cash dividends will be paid during the current budget period ending December 31.
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