Required information

Skip to question

[The following information applies to the questions displayed below.]

Perez Company is a retail company that specializes in selling outdoor camping equipment. The company is considering opening a new store on October 1, year 1. The company president formed a planning committee to prepare a master budget for the first three months of operation. As budget coordinator, you have been assigned the following tasks.

Required

1. October sales are estimated to be $220,000, of which 45 percent will be cash and 55 percent will be credit. The company expects sales to increase at the rate of 20 percent per month. Prepare a sales budget.

2. The company expects to collect 100 percent of the accounts receivable generated by credit sales in the month following the sale. Prepare a schedule of cash receipts.

3. The cost of goods sold is 60 percent of sales. The company desires to maintain a minimum ending inventory equal to 10 percent of the next months cost of goods sold. However, ending inventory of December is expected to be $13,000. Assume that all purchases are made on account. Prepare an inventory purchases budget.

4. The company pays 80 percent of accounts payable in the month of purchase and the remaining 20 percent in the following month. Prepare a cash payments budget for inventory purchases.

5. Budgeted selling and administrative expenses per month follow.

Salary expense (fixed)	$	19,000
Sales commissions		5	% of Sales
Supplies expense		2	% of Sales
Utilities (fixed)	$	2,400
Depreciation on store fixtures (fixed)*	$	5,000
Rent (fixed)	$	5,800
Miscellaneous (fixed)	$	2,200

*The capital expenditures budget indicates that Perez will spend $210,000 on October 1 for store fixtures, which are expected to have a $30,000 salvage value and a three-year (36-month) useful life.

Use this information to prepare a selling and administrative expenses budget.

6. Utilities and sales commissions are paid the month after they are incurred; all other expenses are paid in the month in which they are incurred. Prepare a cash payments budget for selling and administrative expenses.

7. Perez borrows funds, in increments of $1,000, and repays them on the last day of the month. Repayments may be made in any amount available. The company also pays its vendors on the last day of the month. It pays interest of 1 percent per month in cash on the last day of the month. To be prudent, the company desires to maintain a $22,000 cash cushion. Prepare a cash budget.

Return to question 1 Required information month in cash on the last day of the month. To be prudent, the company desires to maintain a $22,000 cash cushion. Prepare a cash budget. (Any repayments/shortage which should be indicated with a minus sign.) Show less Part 1 of 2 Cash Budget October 20 points November December Section 1: Cash Receipts Beginning cash balance $ Add: Cash receipts 99,000 99,000 239,800 239,800 (468) 287,760 287,292 Total Cash available Section 2: Cash Payments For inventory purchases For selling and administrative expenses Purchase of store fixtures 179,571 x 158,822 45,680 48,936 118,272 31,400 2,860 X 210,000 X 2,860 X 2,531 Interest expense 362,532 207,362 231,038 Total budgeted disbursements Section 3: Financing Activities Surplus (shortage) Borrowing (repayment) (263,532) 32,438 56,254 (56,721) X (32,906) X (468) $ Ending cash balance $ (263,532) $ (467)