As the accountant, you will prepare a cash budget by month and in total (July September) and a Budgeted Income Statement for the quarter ending September 30

SRS Educational Supply Company provides educational materials and supplies to educational institutions. The SRS business model is to be a one-stop provider of educational supply needs. For example, some of their product lines include educational workbooks, classroom visual aids, instructor support materials, art supplies, lab supplies, and administrative office supplies. While SRS serves all levels of educational institutions, the majority of their customers are K-12 schools. Sales can vary quite a bit from month-to-month as K-12 educational institutions have seasonal ordering patterns. Thus, budgeting is vital for planning and cash flow purposes. SRS has a June 30, fiscal year end. The companys balance sheet at June 30 is given below: Assets Liabilities & Stockholders Equity Cash $ 40,000 Accounts payable $ 130,000 Accounts receivable 340,000 Inventory 50,000 Capital stock 420,000 Prepaid insurance 18,000 Retained earnings 758,000 Building & equip. (net) 860,000 Total liabilities & Total assets $ 1,308,000 stockholders equity $ 1,308,000 The companys income statement for the year ending June 30 is given below: Sales $ 5,523,000 Cost of goods sold 2,541,000 Gross margin Selling and administrative expenses Shipping $ 249,000 $ 2,982,000 Other 511,000 Salaries and wages 1,104,000 Advertising 685,000 Insurance 27,000 Depreciation 228,000 Total operating expenses 2,804,000 Net operating income $ 178,000 Interest expense 25,000 Net income $ 153,000 The following forecasts have been provided by the organization: Sales forecasts range July $550,000 - $650,000 August $900,000 - $980,000 September $450,000 - $550,000 October $360,000 - $420,000 November $350,000 - $480,000 December $350,000 - $480,000 Purchasing cost range (July December) Cost of goods sold 42% - 50% Operating expense range (July December) Shipping 4% - 5% of sales Other expenses 8% - 9.5% of sales Salaries and wages $85,000 to $95,000 per month Advertising $45,000 - $58,000 per month Insurance $2,000 - $3,000 per month Depreciation $25,000 per month General Instructions for Master Budget Assignment The company has four main departments: Sales, Purchasing, Operations and Finance. Based on the information provided about each department, you will create a master budget for the threemonth period beginning July 1 and ending September 30. You are responsible for creating a budget for each department that will become the master budget. The master budget must include the following detailed budgets: A sales budget by month and in total A schedule of expected cash collections from sales, by month and in total A merchandise purchase budget in dollars. Show the budget by month and in total A schedule of expected cash disbursements for merchandise purchases, by month and in total A selling and administrative budget, by month and in total A schedule of expected cash disbursements for selling and administration, by month and in total A cash budget. Show the budget by month and in total A budgeted income statement for the three-month period ending September 30 A budgeted balance sheet as of September 30 For grading purposes, you will be graded on the accuracy of the budgeted numbers. In addition, you will be graded on the accurate completion of the Budgeted Balance Sheet. Additional Financial Information for the Sales Department SRS has a large number of customers that are K-12 educational institutions. As a result, SRS receives large orders for educational supplies in July and August as schools get ready for the start of the academic year. This is also when educational budgets are still plentiful. Sales begin to decline in September and October and then monthly sales stabilize for the rest of the year (November June) to a range between $350,000 and $480,000. Actual sales for June and your forecasted sales for the next four months are as follows: June (actual) $455,000 July Likely Range: $550,000 - $650,000 (most likely outcome is $600,000) August Likely Range: $900,000 - $980,000 (most likely outcome is $910,000) September Likely Range: $450,000 - $550,000 (most likely outcome is $475,000) October Likely Range: $360,000 - $420,000 (most likely outcome is $385,000) As the accountant, your specific responsibility is to prepare a sales budget and a schedule of expected cash collections from sales by month and in total (July September). Additional Financial Information for the Purchasing Department Most of SRS clients expect a one to three-day turn-around time for orders. It typically takes a week for the company to get merchandise. As a result, the organization states that it has approximately a weeks worth of inventory on hand at all times. For budgeting purposes, the organization should plan to purchase enough merchandise during any one month to meet the sales projections for that month and to end the month with 20% of the next months cost of merchandise sold. The companys cost of merchandise sold ranges from 42% 50% of sales with the most likely outcome for next quarter (July September) of 45% of sales. As the accountant, your responsibility is to prepare a merchandise purchase budget (in dollars) and a schedule of expected cash disbursements for merchandise purchases by month and in total (July September). Additional Financial Information for the Operations Department The Operations and Logistics Department of SRS Educational Supply Company secures advertising that supports the sales efforts, coordinate shipping and delivery of merchandise to clients and provide general administrative support to the other departments. The organization has estimated the companys monthly operating expenses for the next quarter (July September) as follows: Variable: Shipping 4.0% to 5.0% of sales with 5% of sales the most likely outcome Other expenses 8.0% to 9.5% of sales with 8% of sales the most likely outcome Fixed: Salaries and wages $85,000 to $95,000 with $85,000 the most likely outcome Advertising $45,000 to $58,000 with $50,000 the most likely outcome Insurance $2,000 to $3,000 with $3,000 the most likely outcome Depreciation $25,000 As the accountant, you will prepare a selling and administrative budget and a schedule of expected cash disbursements by month and in total (July September). Additional Financial Information for the Finance Department The Accounting and Finance Department of SRS Educational Supply Company manages the accounts receivable and collections, accounts payable, general ledger, and handles the cash management, borrowing and investing activities of the company. Historic collection data (cash collections of sales): All sales are on credit, with no discounts, and due in 15 days. The company has found, however, that only 30% of a months sales are collected by month-end and the remaining 70% is collected in the following month. Historic payment data: Purchases of inventory are paid for as follows: 50% in the month of purchase and the remaining 50% in the following month. Other operating expenses are paid in cash during the month they are incurred. Other planned outlays of cash: During July, purchases of automated equipment totaling $200,000 for cash. New computers for the office will be purchased during August for $90,000 cash. The company plans on declaring and paying dividends of $50,000 during July. Cash management policies: Desired minimum ending cash balance each month: $35,000 The company has a line of credit with a bank. The company can borrow in increments of $1,000 at the beginning of each month. The interest rate on these loans is 1% per month and we assume a simple interest calculation (not compounded). At the end of each month, the company pays the bank as much of the loan as possible (increments of $1,000), while still retaining at least $35,000 in cash. For simplicity, the company pays the bank the interest related to the borrowing for one month at the beginning of the next month. For example, the interest on any borrowing in June is paid in July. As the accountant, you will prepare a cash budget by month and in total (July September) and a Budgeted Income Statement for the quarter ending September 30. * Depreciation on newly acquired assets will be made as an adjustment at the end of the fiscal year.

SRS COST DATA Direct materials and supplies purchased on credit: $800 Direct materials used: $710 Indirect materials issued to various production departments: $100 Direct manufacturing labor: $1,300 Indirect manufacturing labor incurred by various production departments: $900 Depreciation on building and manufacturing equipment: $400 Miscellaneous manufacturing overhead incurred by various production departments: $550 o (Ordinarily, this would be detailed as repairs, photocopying, utilities, etc.) Manufacturing overhead allocated at 160% of direct manufacturing labor costs: ? Cost of goods manufactured: $4,120 Revenues: $8.000 Cost of goods sold (before adjustment for under- or overallocated manufacturing overhead): $4,020 Inventories. December 31, 2016 (not 2017): o Materials control: $100 o Work-in-process control: 560 o Finished goods control: $500 SRS COST DATA Direct materials and supplies purchased on credit: $800 Direct materials used: $710 Indirect materials issued to various production departments: $100 Direct manufacturing labor: $1,300 Indirect manufacturing labor incurred by various production departments: $900 Depreciation on building and manufacturing equipment: $400 Miscellaneous manufacturing overhead incurred by various production departments: $550 o (Ordinarily, this would be detailed as repairs, photocopying, utilities, etc.) Manufacturing overhead allocated at 160% of direct manufacturing labor costs: ? Cost of goods manufactured: $4,120 Revenues: $8.000 Cost of goods sold (before adjustment for under- or overallocated manufacturing overhead): $4,020 Inventories. December 31, 2016 (not 2017): o Materials control: $100 o Work-in-process control: 560 o Finished goods control: $500