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 months 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.

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Part A Part B Part Part D Part E Part F (b) Prepare 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 5 0 x $ 0 x 5 OXS OX Part A Part B Part C Part D Part E Part F :) Prepare a cash disbursements schedule for each month of the second quarter ending June 30. Do not include repayments of borrowings. NORDSTROMS Schedule of Monthly Cash Disbursements (in thousands) Quarter Ending June 30 April May June Total Total cash disbursements OXS OXS OXS OX (d) Prepare a cash budget for each month of the second quarter ending June 30. Include budgeted borrowings and repayments Only use negative signs, if needed, for: excess receipts over disbursements, balance before borrowings and cash balances (beginning and endi NORDSTROMS Monthly Cash Budget (in thousands) Quarter Ending June 30 April May June Total Cash balance, beginning 3600 X 5 OX 5 OX OX Receipts OX OX OX Disbursements OX OX 0x Ox Excess receipts over disb. OX OX OX Ox Balance before borrowings DX OX Borrowings 0 0 0 x Loan repayments OX OX OX Cash balance, ending 5 3420 x 5 0 X $ 0 x 5 OX Part A Part B Part Part 0 Part E Part F Sales (e) Prepare an income statement for each month of the second quarter ending June 30. Only use negative signs to show net losses for income. NORDSTROMS Budgeted Monthly Income Statements in thousands) Quarter Ending June 30 April May June Total 5 0 x 5 0 X $ Ox $ Ox Cost of sales 0 x OX OX Gross profit OX OX 0 x OX Operating expenses: Wages and salaries OX OX OX OX Depreciation OX DX OX OX Advertising 0X 0 OX OX Other costs 0 X OX OX Insurance OX OX OX Interest OX 0 X OX Ox Part A Part B Part Part Part Part F Prepare a budgeted balance sheet as of June 30 NORDSTROMS Budgeted Balance Sheet (in thousands) June 30 Assets Llabilities and Equity 15 x Accountable OX DIMENS Invertory 2880 Prepaid insurance OK Il X DIX