Comprehensive Master (Operating) Budget

Bee Gee Distributors, a wholesale company, is considering whether to open a new distribution center near Bowling Green, Ohio. The center would open January 1, 2020. The economic outlook is reasonable, but extensive advance planning is required if such a commitment is to be made. As a part of the planning process, The Board of Directors requires a Master (i.e. Operating) Budgetfor the centers first quarter of operations(i.e. January, February & March of 2020). In order to prepare anybudget, management must make reasonable assumptions about expected sales, inventory levels and cash flows.

Required: Your help is needed to construct the entire first quarter Master Budget based upon the following two pages of management assumptions:

SALES BUDGET: What is the Profit 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 be on credit. Management expects the above sales pattern to continue with an overall grow rate of 10% per month. Prepare a sales budget.

b. The company expects to collect 100% of the accounts receivable in the month following the month of the sale. Prepare a schedule of expected cash receipts.

c. Use the information developed above in requirements a and bto determine the amount of accounts receivable on the March 31 pro forma balance sheet and the amount of sales on the first quarter pro forma income statement.

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PURCHASES BUDGET: What are our total needs, less what do we have?

d. Cost of goods sold will be 60% of sales. Company policy is to budget an ending inventory balance equal to 25% of the next months projected cost of goods sold. Prepare an inventory purchases budget.

Note: For March analysis needs, Aprilcost of goods sold is expected to be $314,000.