Baxter Distributors, a wholesale company, is considering whether to open a new distribution center The center would open October 1, 2017 To make the decision, the planning committee requires a master budget for the centers first quarter of operation (October, November, and December of 2017) You are to construct the quarterly master budget based on the following expectations a October sales are estimated to be $450,000 of which $150,000 will be cash and $300,000 will be credit The company expects sales to grow 4 per month Prepare a sales budget b The company expects to collect 60 of accounts receivable in the month of the sale and 37 in the month following the sale 3 will not be collected Prepare a schedule of expected cash receipts c Cost of goods sold will be 55 of sales Company policy is to budget an ending inventory balance equal to 20 of the next months projected cost of goods sold Assume Baxter expects January 2018 cost of goods sold to be $110,000 Prepare an inventory purchases budget d All inventory purchases are on account The company pays 60 of accounts payable in the month of purchase It pays the remaining 40 in the following month Prepare a schedule of expected cash payments for inventory purchases e Budgeted monthly selling and administrative expenses are Salary Expense (Fixed) $28,000 Sales Commissions 7 of Sales Supplies Expense 2 of Sales Utilities (Fixed) $ 1,400 Depreciation on Equipment (Fixed) Calculate Rent (Fixed) $ 3,000 Miscellaneous (Fixed) $ 800 The capital expenditures budget shows that Baxter must purchase $134,000 of equipment on October 1st to establish the new center Baxter will pay for the equipment on November 1st The equipment is expected to have a 7 year useful life and a $6,600 salvage value Prepare a selling and administrative expense budget f Sales commissions, utilities and supplies are paid in the month following the one in which they are incurred All other expenses are paid in the month in which they are incurred Prepare a schedule of cash payments for selling and administrative expenses g Using a line of credit, Baxter borrows and repays principal in increments of $1,000 on the last day of the month as needed It pays interest of 1 percent per month in cash on the last day of the month Company policy is to maintain an ending cash balance of at least $5,000 Prepare a cash budget h Complete the monthly and first quarter pro forma income statement i Octobers Actual Sales were $425,000 Actual Selling and Administrative expenses were Salary Expense $23,000 Sales Commissions $30,000 Supplies Expense $2,000 Utilities $2,300 Depreciation $1,500 Rent $3,000 Misc $1050 Prepare a flexible budget for October Compute the spending variances for the Selling and Administrative budget Write a memo to the Macy Jones, President of Baxter, explaining your finding on the Selling and Administrative Budget vs Actual for October Make suggestions for revisions to the November and December budgets

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Baxter Distributors, a wholesale company, is considering whether to open a new distribution center. The center would open October 1, 2017. To make the decision,

Baxter Distributors, a wholesale company, is considering whether to open a new distribution center. The center would open October 1, 2017. To make the decision, the planning committee requires a master budget for the centers first quarter of operation (October, November, and December of 2017).

You are to construct the quarterly master budget based on the following expectations:

a. October sales are estimated to be $450,000 of which $150,000 will be cash and $300,000 will be credit. The company expects sales to grow 4% per month. Prepare a sales budget.

b. The company expects to collect 60% of accounts receivable in the month of the sale and 37% in the month following the sale. 3% will not be collected. Prepare a schedule of expected cash receipts.

c. Cost of goods sold will be 55% of sales. Company policy is to budget an ending inventory balance equal to 20% of the next months projected cost of goods sold. Assume Baxter expects January 2018 cost of goods sold to be $110,000. Prepare an inventory purchases budget.

d. All inventory purchases are on account. The company pays 60% of accounts payable in the month of purchase. It pays the remaining 40% in the following month. Prepare a schedule of expected cash payments for inventory purchases.

e. Budgeted monthly selling and administrative expenses are:

Salary Expense (Fixed)	$28,000
Sales Commissions	7% of Sales
Supplies Expense	2% of Sales
Utilities (Fixed)	$ 1,400
Depreciation on Equipment (Fixed)*	Calculate
Rent (Fixed)	$ 3,000
Miscellaneous (Fixed)	$ 800

*The capital expenditures budget shows that Baxter must purchase $134,000 of equipment on October 1st to establish the new center. Baxter will pay for the equipment on November 1st. The equipment is expected to have a 7-year useful life and a $6,600 salvage value. Prepare a selling and administrative expense budget.

f. Sales commissions, utilities and supplies are paid in the month following the one in which they are incurred. All other expenses are paid in the month in which they are incurred. Prepare a schedule of cash payments for selling and administrative expenses.

g. Using a line of credit, Baxter borrows and repays principal in increments of $1,000 on the last day of the month as needed. It pays interest of 1 percent per month in cash on the last day of the month. Company policy is to maintain an ending cash balance of at least $5,000. Prepare a cash budget.

h. Complete the monthly and first quarter pro forma income statement.

i. Octobers Actual Sales were $425,000. Actual Selling and Administrative expenses were:

Salary Expense	$23,000
Sales Commissions	$30,000
Supplies Expense	$2,000
Utilities	$2,300
Depreciation	$1,500
Rent	$3,000
Misc.	$1050

Prepare a flexible budget for October. Compute the spending variances for the Selling and Administrative budget.

Write a memo to the Macy Jones, President of Baxter, explaining your finding on the Selling and Administrative Budget vs. Actual for October. Make suggestions for revisions to the November and December budgets.