Camden Company is a retail company that specializes in selling outdoor camping equipment. The company is considering opening a new store on October 1, 2019.
Camden Company is a retail company that specializes in selling outdoor camping equipment. The company is considering opening a new store on October 1, 2019. The company president formed a planning committee to prepare a master budget for the first three months of operation. As budget coordinator, you have been assigned the following tasks:
Required
A. October sales are estimated to be $125,000, of which 40 percent will be cash and 60 percent will be credit. The company expects sales to increase at the rate of 8 percent per month. Prepare a sales budget.
| |
| | | | October | November | December | | Sales Budget | | | | | Cash sales | | | | | Sales on account | | | | | Total budgeted sales | | | | |
B. The company expects to collect 100 percent of the accounts receivable generated by credit sales in the month following the sale. Prepare a schedule of cash receipts.
| |
| | | | October | November | December | | Schedule of Cash Receipts | | | | | Current cash sales | | | | | Plus collections from A/R | | | | | Total collections | | | | |
C. The cost of goods sold is 60 percent of sales. The company desires to maintain a minimum ending inventory equal to 10 percent of the next months cost of goods sold. However, ending inventory of December is expected to be $6,000. Assume that all purchases are made on account. Prepare an inventory purchases budget.
The cost of goods sold is 60 percent of sales. The company desires to maintain a minimum ending inventory equal to 10 percent of the next months cost of goods sold. However, ending inventory of December is expected to be $6,000. Assume that all purchases are made on account. Prepare an inventory purchases budget.
| |
| | | | October | November | December | | Inventory Purchases Budget | | | | | | | | | | | | | | | Inventory needed | | | | | | | | | | Required purchases (on account) | | | | |
D. The company pays 70 percent of accounts payable in the month of purchase and the remaining 30 percent in the following month. Prepare a cash payments budget for inventory purchases.
| |
| | | | October | November | December | | Schedule of Cash Payments Budget for Inventory Purchases | | Payment of current month's accounts payable | | | | | Payment for prior month's accounts payable | | | | | Total budgeted payments for inventory | | | | |
E. Budgeted selling and administrative expenses per month follow:
| |
| | | | October | November | December | | Selling and Administrative Expense Budget | | Salary expense | | | | | Sales commissions | | | | | Supplies expense | | | | | Utilities | | | | | Depreciation on store fixtures | | | | | Rent | | | | | Miscellaneous | | | | | Total S&A expenses | | | | |
| |
| Salary expense (fixed) | $ | 9,000 | |
| Sales commissions | | 5 | % of Sales |
| Supplies expense | | 2 | % of Sales |
| Utilities (fixed) | $ | 700 | |
| Depreciation on store fixtures (fixed)* | $ | 2,000 | |
| Rent (fixed) | $ | 2,400 | |
| Miscellaneous (fixed) | $ | 600 | |
| |
*The capital expenditures budget indicates that Camden will spend $82,000 on October 1 for store fixtures, which are expected to have a $10,000 salvage value and a three-year (36-month) useful life. Use this information to prepare a selling and administrative expenses budget.
F. Utilities and sales commissions are paid the month after they are incurred; all other expenses are paid in the month in which they are incurred. Prepare a cash payments budget for selling and administrative expenses.
| |
| | | | October | November | December | | Schedule of Cash Payments for S&A Expenses | | Salary expense | | | | | Sales commissions | | | | | Supplies expense | | | | | Utilities | | | | | Depreciation on store fixtures | | | | | Rent | | | | | Miscellaneous | | | | | Total payments for S&A expenses | | | | |
G. Camden borrows funds, in increments of $1,000, and repays them on the last day of the month. Repayments may be made in any amount available. The company also pays its vendors on the last day of the month. It pays interest of 1 percent per month in cash on the last day of the month. To be prudent, the company desires to maintain a $6,000 cash cushion. Prepare a cash budget.
| |
| | | Cash Budget | | | October | Novomber | December | | | | | | | | | | | | Cash available | | | | | Less: Payments | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total budgeted payments | | | | | Payments minus receipts | | | | | | | Financing activity | | | | | | | | | | | | | |
H. Prepare a pro forma income statement for the quarter.
| |
| | | CAMDEN COMPANY | | Pro Forma Income Statement | | For the Quarter Ended December 31, 2019 | | | | | | | | | | | | | | | | | | | | | | |
I. Prepare a pro forma balance sheet at the end of the quarter.
| |
| | | CAMDEN COMPANY | | Pro Forma Balance Sheet | | December 31, 2019 | | Assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total assets | | | | Liabilities | | | | | | | | | | | | | | | | | | | | | | | | Equity | | | | | | | | | | | | Total liabilities and equity | | | |
J. Prepare a pro forma statement of cash flows for the quarter.
| |
| | | CAMDEN COMPANY | | Pro Forma Statement of Cash Flows | | For the Quarter Ended December 31, 2019 | | Cash flows from operating activities | | | | | | | | | | | | | | | | | | | | Net cash flows from operating activities | | | | Cash flows from investing activities | | | | | | | | Cash flow from financing activities | | | | | | | | | | | | | | | | | | | |
