Question 4: Financial Budgeting Statement of Financial Perfromance Jim's Trading Company has been operating a business selling exercise equipment. The company began operations on 1" January with the following assets: Quarter 1 Quarter 2 Quarter 3 Cash $14,000 Sales Revenue 150,000 290,000 340,000 Inventory $29,000 Land $31,000 Less Cost of Sales 90,000 Buildings & Equipment $250,000 Annual Depreciation Charge is 15% Sales for Quarter 1 (Jan, Feb & March) are expected to be $150,000 and for Quarter 2 (Apr., May, Gross Profit June) are expected to be $290,000, and for Quarter 3 are forecast at $340,000. Less Variable Expenses Certain expenses are expected to vary with sales as follows: Cost of Goods Sold 60% Bad Debts Bad Debts 2% . . Variable selling expenses 14% Variable Selling Expense variable administration expenses 5% Variable Admin Expense Other Expenses not expected to vary with sales are as follows per quarter: Selling Expense $25,000 per quarter Total Variable Expense Administration Expense $18,550 per quarter Depreciation $??? per quarter CONTRIBUTION MARGIN Jim's Trading Company is also preparing a cash budget for the first TWO quarters. In addition to the Less Fixed Expenses data above, the following estimates are provided: 75% of sales will be received in the quarter in which the sale is made and 23% in the Fixed Selling Expense following quarter. 60% of merchandise purchases will be paid for in the quarter in which the purchases are Fixed Admin Expense made and the balance in the following quarter. The ending Inventory of each quarter should be equal to 30% of the amount of estimated Depreciation cost of goods sold for the coming quarter. 70% of operating expenses (including selling and admin expenses) will be paid for in the Total Fixed Expense quarter in which the expenses are incurred and the balance in the following quarter. Additional plant investment of $22,500 will have to be paid at the end of the 2"d quarter to Net Income handle the increased sales volume expected in the 3" quarter. Required: (a) Prepare an Income Statement budget for the first and second quarters of operations for Plant & Equipment Cost Jim's Trading Company. (b) Prepare a Cash Budget showing details for collections from customers and payments to suppliers, for the first and second quarters of operations for Jim's Trading Company. Depreciation Rate - Per Annum