You manage a large suburban store for HiFields Sports and Recreation which carries a range of sporting and recreational goods including drones. Head Office has asked for your input into the budgeting process for the store for the months of October, November, and December which is peak period for sales activity. The Divisional Manager and Assistant Chief Financial Officer will be on site from next week to review the budget with you. As a starting point you review the Balance Sheet for the store as at the 30th September, 2019: Assets Liabilities Current Assets Current Liabilities Cash at Bank 15,000 Accounts Payable 16,800 Accounts Receivable net 16,000 Wages Payable 4,250 Inventory 48,000 Total liabilities 21,050 Prepaid Insurance 1,800 Total Current Assets 80,800

Non-current Assets Owner Equity Equipment & Fixtures 32,000 Owners Equity 78,950 Less Accumulated Depreciation (12800) Total Non-current Assets 19 200 TOTAL ASSETS $100,000 TOTAL LIABILITIES & OE $100,000 Working with staff, you gather the following information to prepare the budget: 1. Sales in September were $40000. Monthly sales are projected by the sales team as follows: October $50000 November $80000 December $60000 January $50000 Sales are 60% cash and 40% on credit. All accounts receivable are collected in the month following sale. ($16000 of accounts receivable at 30th September arose from credit sales made in September. Bad Debts are not significant). 2. HiFields inventory policy is to maintain inventory equal to $20000 plus 80% of the budgeted cost of sales for the following month. (All these percentages are drawn from the businesss past experience.) Cost of sales averages 70% of sales. These data explain why the inventory on 30th September is $48000, calculated as follows: 30 September inventory = $20000 + 0.80 x (0.70 x October sales $50000) The store pays for inventory 50% during the month of purchase and 50% in the following month. Accounts Payable consist of inventory purchases only. September purchases were $33 600 so accounts payable at the end of September in the Balance Sheet totalled $16800 ($33600 x 0.50). 3. Monthly payroll consists of two parts: fixed wages of $2500 plus sales commissions equal to 15% of sales. Policy is to pay half of this in the current month and half in the month following. As an indication: September payroll = Fixed wages $2500 + commission $6000 (0.15 x 40000) = $8500 This led to the Wages Payable in the Balance Sheet of $4250 (0.50 x $8500) 4. Other monthly expenses are: Rent Expense $2000 paid monthly Depreciation Expense incl Truck 500 Insurance Expense 200 expiration of prepaid Miscellaneous Expense 5% of sales paid monthly 5. A used delivery truck will be purchased in October for $3000 cash. 6. Hifields policy is to maintain a cash balance of $10 000 at the end of each month. If necessary the business can use a short term loans in multiples of $1000 at an annual interest rate of 12%. Management borrows no more money than the amount needed to maintain the $10000 minimum cash balance. The loans require six equal monthly payments consisting of principal plus monthly interest on the entire unpaid principal. Borrowing an all principal and interest payments occur at the end of the month. 7. Tax in the responsibility of head office so can be ignored. You have been asked to use the templates provided to prepare the following. (Note use the template provided to prepare the budget schedules): (i) Sales budget (Schedule A) (ii) Budgeted cash collections from customers (Schedule B) (iii) Purchases, cost of sales and inventory budget (Schedule C) (iv) Budgeted cash payments for purchases (Schedule D) (v) Operating expense budget (Schedule E) (vi) Budgeted cash payments for operating expenses (Schedule F) (vii) Statement of budgeted cash receipts and payments by month for the three months ended 31st December, 2019 (Schedule G) After preparing the budget schedules answer the following questions: a. The budget suggests a cash deficiency in October. Suggest 2 ways in which a modification of plans could overcome this problem. b. Discuss 3 reasons why the management of HiFields may have requested a detailed budget for the forthcoming months? c. Why is it crucial that those responsible for delivering targets have input into the budget process. d. What is wrong with comparing actual performance with past performance or the performance of others in an effort to exercise control? e. What is management by exception? For example, if sales volume in any month falls below expectations what actions might be taken? f. Based on your readings in the course and/or your own experience in 300 words: (i) outline the process that you will undertake to prepare the budgets. (ii) reflect on the process and list any points that should be included in the system or routine to enable control through budgets to be effective.