Part I

You are the manager of American Sports, Inc. (ASI) Store No. 5 located in Burlington, North Carolina. ASI carries a complete line of outdoor recreation gear. You are to prepare the store's master budget for July, August, September, and October of 2020, the main selling season. The division manager and the assistant controller (head of the Accounting Department) will arrive from headquarters next week to review the budget with you. The following information is needed to complete the master budget:

1.Cash collections follow sales. When the company needs extra cash, it borrows on six-month installment notes payable.

2.Your store's actual balance sheet at June 30, 2020 is below.

3.Sales in June were $40,000. The sales force predicts these future monthly sales are:

July 2020$50,000

August 202080,000

September 202060,000

October 202050,000

Sales are 60% cash and 40% on credit. ASI collects all credit sales the month after the sale. The $16,000 of accounts receivable at June 30 are from credit sales in June. Uncollectible accounts are insignificant.

4.ASI maintains inventory equal to $20,000 plus 80% of the budgeted cost of goods sold for the following month. November 2020 projected cost of goods sold is $28,000. Cost of goods sold averages 70% of sales. These percentages are based on experience.

ASI pays for inventory as follows: 50% during the month of purchase and 50% during the next month. Accounts payable consists of inventory purchases only.

5.Monthly payroll has two parts: a salary of $2,500 plus sales commissions equal to 15% of the month's sales. The company pays half this amount during the month and half early in the following month.

6.Other monthly expenses are as follows:

Rent expense$2,000, paid as incurred

Depreciation expense, including new truck500

Insurance expense200 expiration of prepaid amount

Miscellaneous expenses5% of sales, paid as incurred

7.ASI plans to purchase a used delivery truck in July for $3,000 cash.

8.Corporate requires each store to maintain a minimum cash balance of $10,000 at the end of each month. The store can borrow money on 6-month notes payable of $1,000 each at an annual interest rate of 12%. Management borrows enough to maintain the $10,000 minimum, but not a great deal more. Notes payable require six equal monthly payments of principal, plus monthly interest on the entire unpaid principal. Borrowing and all principal and interest payments occur at the end of the month.

9.Income taxes are the responsibility of corporate headquarters, so you can ignore taxes for budgeting purposes.

Required:

A.Prepare the sales budget (each month and total four months)

B.Prepare the purchases budget showing the inventory and cost of goods sold (all in one) (each month and total four months)

C.Prepare the operating expense budget for the income statement (each month and total four months)

D.Prepare the budgeted cash collections from customers (each month and total four months)

E.Prepare the budgeted cash disbursements for purchases and operating expenses (each month and total four months)

F.Prepare the cash budget (each month and total four months)

G.Prepare the budgeted income statement (each month and total four months)

H.Prepare the budgeted balance sheet at October 31, 2020

Check figures: Inventory purchases for all four months = $162,400; ending cash balance for July 2020 = $10,550; Total assets = $106,125; net income for all four months = $2,975.

Part II

Refer back to Part I information. On August 10, you have the actual numbers for July 2020. They are as follows:

Sales:Actual 2,200 units sold at $24 each; Budgeted sales of 2,000 units at $25 each

COGS:Actual is 72% of sales; all variable

Sales salaries:Actual is $2,750

Rent expense:Actual is $2,100

Depreciation and insurance expense: as expected

Sales commissions-Actual is $8,100

Miscellaneous expense-Actual is $3,200

Required:

Flexible Budget Performance Report (see example provided in class for the layout). Be sure to include a row for the units, revenue, and every expense and show all five columns (in good form-heading and on Excel as another worksheet in the same file).Check figure: the Sales-Activity (Volume) Variance column total is $500 F.