Developing a Master Budget for a Merchandising Organization

Assume Nordstrom prepares budgets quarterly. The following information is available for use in planning the second quarter budgets for one of its stores (in thousands).

NORDSTROM Balance Sheet March 31
Assets	Liabilities and Stockholders' Equity
Cash	$ 2,525	Merchandise purchases payable	$2,400
Accounts receivable	2,040	Dividends payable	710
Inventory	3,400	Stockholders' equity	8,005
Prepaid Insurance	150
Fixtures	3,000
Total assets	$11,115	Total liabilities and equity	$11,115

Actual and forecasted sales for selected months in the upcoming year are as follows:

Month (in thousands)	Sales Revenue
January	$2,600
February	2,700
March	3,000
April	3,600
May	3,800
June	3,500
July	3,200
August	4,000

Monthly operating expenses are as follows:

Wages and salaries	$750
Depreciation	75
Advertising	55
Other costs	350

Cash dividends for the store of $710 thousand are declared during the third month of each quarter and are paid during the first month of the following quarter. Operating expenses, except insurance, rent, and depreciation are paid as incurred. The prepaid insurance is for five more months. Cost of goods sold is equal to 60% of sales. Ending inventories are sufficient for 150% of the next month's cost of sales. Purchases during any given month are paid in full during the following month. Cash sales account for 50% of the revenue. Of the credit sales, 60% are collected in the next month and 40% are collected in the month after. Money can be borrowed and repaid in multiples of $100 thousand at an interest rate of 12% per year. The company desires a minimum cash balance of $2 million on the first of each month. At the time the principal is repaid, interest is paid on the portion of principal that is repaid. All borrowing is at the beginning of the month, and all repayment is at the end of the month. Money is never repaid at the end of the month it is borrowed.

• Part A
• Part B
• Part C
• Part D
• Part E
• Part F

(b) Develop a cash receipts schedule for each month of the second quarter ending June 30. Do not include borrowings.

NORDSTROMS Schedule of Monthly Cash Receipts (in thousands) Quarter Ending June 30
	April	May	June	Total
Total cash receipts