Question

Esteem is a retail company that sells specialized gardening products. The company is considering opening a new store on October 1, Year1. As budget coordinator, you have been asked to prepare a master budget for the first 3 months of the company’s operation. You have gathered the following information:

October sales are estimated to be $350000 of which 40 percent will be cash and the remainder will be on credit. The company expects all sales to increase at the rate of 20 percent per month for November and December. Sales in January Year 2 are expected to be $320000.

The company expects to collect 100 percent of the accounts receivable generated by credit sales in the month following the sale.

Budgeted selling and administrative expenses per month follow.

Salary expense (fixed): $ 28900

Sales commissions:  5 percent of Sales

Supplies expense:   2 percent of Sales

Utilities (fixed): $1500              

Depreciation on store equipment (fixed)*:   You compute    

Rent (fixed) $ 13000          

Miscellaneous (fixed): $ 2700      

*The capital expenditures budget indicates that the company will spend $370000 on October 1 for store fixtures, which are expected to have a $10000 residual value and a 48 month useful life.

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.

In excel, prepare the selling and administrative expenses budget and the cash payments budget for selling and administrative expenses. Check the key figures below.

e. Selling and Admin.Expense Budget	October	November	December	Total-Qtr
Salary expense
Sales commissions
Supplies expense
Utilities
Depreciation on store fixtures
Rent
Miscellaneous
Total S&A expenses

f. Cash payments for S&A	October	November	December	Total-Qtr
Salary expense
Sales commissions
Supplies expense
Utilities
Depreciation on store fixtures
Rent
Miscellaneous
Total payments for S&A expenses

Answer 1

			Oct	Nov	Dec	Quarter	Jan
Sales revenue budgeted			350000	420000	504000	1274000	320000
Selling and admin budget
Salary expensne			28900	28900	28900	86700
Sales commission			17500	21000	25200	63700
Supplies expense			7000	8400	10080	25480
utilities			1500	1500	1500	4500
Depreciaion on store fixtures			7500	7500	7500	22500
Rent			13000	13000	13000	39000
Miscellenous			2700	2700	2700	8100
Total S& A expenses			78100	83000	88880	249980
Cash payment of S7A
Salary expensne			28900	28900	28900	86700
Sales commission			0	17500	21000	38500
Supplies expense			7000	8400	10080	25480
utilities			1500	1500	1500	4500
Depreciaion on store fixtures			0	0	0	0
Rent			13000	13000	13000	39000
Miscellenous			2700	2700	2700	8100
Total S& A expenses			53100	72000	77180	202280