You have been hired to prepare parts of the master budget for Grippers, which sells its rock-climbing shoes worldwide. You are required to only prepare the January and February budget.

Gripper expects to sell 4,000 pairs of shoes for $185 each in January and 3,500 pairs of shoes for $220 each in February. Sales are 25% cash and 75% credit

Prepare the Sales budget for Grippers for January, February and in total for the 2 months

Grippers expects cost of goods sold to average 65% of the current months sales and the company expects to sell 4,300 pairs of shoes in March for $240 each. Grippers target ending inventory is $10,000 plus 50% of the next months cost of goods sold.

Employee wage costs per month are made up of 2 parts: a salary of $5,000 plus sales commissions equal to 10% of the current months sales. This is a mixed cost with both a fixed ($5,000) and a variable portion. The company pays half this amount in the current month and half early the following month.

Other monthly expenses:

Rent expenses fixed cost $9,000 (paid on first of month)

Amortization, including computer fixed costs $2,250

Insurance expense fixed costs $600 (from prepaid insurance)

Miscellaneous expenses variable costs 9% of sales

Miscellaneous expenses are paid 70% in the current month and 30% in the following month.

Complete the Operating Expenses Budget and fill in the following numbers. Remember - this is accrual accounting based!

Total operating expenses for January are $ _______________

Total operating expenses for February are $ _________________

HINT: the income statement should be a total income statement for the 2 months together. DO NOT create monthly income statements.

NOTE: ignore income taxes.

Total sales revenue is $ __________________

Cost of goods sold is $ ___________________

Gross Profit is $ _____________________

Total operating expenses are $ __________________

Operating income is $ _________________

Assume that Grippers sales are 25% cash and 75% credit. Grippers collection history indicates that credit sales are collected as follows:

30% in the month of sale

60% in the month after the sale

10% two months after the sale

November sales IN TOTAL are $391,500, and December sales were $398,250. HINT: consider that the information given for November and December are sales IN TOTAL (100%).

Prepare a schedule for the budgeted cash collections for January and February.

Total collections in January are $ ___________________

Total collections in February are $ ___________________

Grippers pays for inventory as follows: 60% in the month of purchase and the remaining 40% in the following month. HINT: you may need the information from December sales for this question.

Complete the Budgeted Cash Payment for Purchases schedule and determine total payment for purchases for January and February.

Total payments for purchases for January are $ _________________

Total payment for purchases for February are $ _________________

Total payment for operating expenses for January are $ ________________

Total payment for operating expenses for February are $ ________________

Grippers purchased new manufacturing equipment in January, paying $20,000 cash for the new machine.

Grippers has $8,300 cash on hand on January 1^st. The company requires a minimum cash balance of $7,500.

Using the information from all previous parts of the question, complete the Cash Budget for January and February.

NOTE: enter negative numbers with a '-'

Cash available in January is $ _________________

Cash payments in January are $ ________________

Ending cash balance on January 31st is $ ______________

Will Grippers need to borrow cash at the end of January? _______________

If so, how much will Grippers have to borrow? _______________

Grippers will have to borrow $ ______________ in order to ensure they have $7,500 on hand at the end of January.

Cash available for February is $ ______________

Cash payments for February are $ _______________

Ending cash balance on February 28th is $ _________________

NOTE: IGNORE interest expense for the purposes of this question!