The San Marcos Emporium Company is a merchandising business located downtown in San Marcos, Texas. The owners are Texas State alumni and they would like to maximize their profits. They understand that accurate budgeting will help obtain this goal. The company is completing its third year of operations and is preparing to build its master budget for the fourth quarter of the year. The budget will detail each months activity and the total for the quarter. The master budget will be based on the following information:

Sales were budgeted at $202,000 for September. Expected sales are $208,000 for October, $207,000 for November, $210,000 for December, and $204,000 for January 2018.

The gross margin is 40% of sales.

Sales are projected to be 80% in cash and 20% on credit. Credit sales are collected in the month following the sale. The September accounts receivable are a result of the September credit sales. There are no bad debts.

Each months ending inventory should equal 75% of the next months budgeted cost of goods sold.

Merchandise Inventory Purchases are paid as follows; 85% of a months inventory purchases are paid for in the month of purchase; the remaining 15% is paid for in the following month. The accounts payable at September 30 are the result of September purchases of inventory.

Monthly operating expenses are as follows: commissions are 10% of sales; rent is $3,000 per month, other operating expenses (excluding depreciation) are 15% of sales. Assume these expenses are paid in cash each month. Deprecation is $1,500 per month.

November equipment purchases cost $8,000, and December equipment purchases cost $3,000. All equipment purchases are paid for in cash in the month purchased.

Income tax is estimated to be 28% of operating income. Estimated taxes are accrued each month and paid in cash in the last month of the quarter.

Management established a new policy this quarter, and would like to maintain a minimum cash balance of at least $50,000 at the end of each month. The company has an agreement with a local bank that allows them to borrow in increments of $1,000 at the end of each month. The interest rate on these loans is 1% per month and for simplicity we will assume that interest is not compounded (only paying interest on the principal). They would, as far as it is able, repay the loan plus accumulated interest in the last month of the quarter.

The projected balance sheet as of September 30, is as follows:

Assets	September 30
Cash	$12,000.00
Accounts Receivable	40,400.00
Inventory	93,600.00
Plant & Equipment, net	121,750.00
Total assets	$267,750.00
Liabilities & Equity
Accounts Payable	$18,585.00
Retained Earnings	249,165.00
Total liabilities & equity	$267,750.00

G3 i Assumptions San Marcos Emporium 3 Expected sales: 4 September 8 January 10 Credit Sales 11 cash sales of sales 13 Gross Margin 14 CGS of sales 15 DEI of next month's CGS 17 Operating Expenses: 18 commissions of sales 19 other operating Expen of sales 20 Rent 21 Depreciation 23 Income Tax Rate of operating Income 25 Inventory Purchases: paid in month of purchase 26 paid in month following the purchase 28 Equipment Purchases 32 New Borrowings 33 (l's OK to determine how much you need to borrow and enter it the assumption sheet) 34 october 36 Loan Interest Rate per month 39 Cash 40 Accounts Receivable 41 Inventory 42 Plant & Equipment, net 44 Liabilities & Equity 45 Accounts payable 46 Retained Earnings