Developing a Master Budget for a Merchandising Organization
Assume Nordstrom prepares budgets quarterly. The following information is available for use in planning the second quarter budgets for one of its stores (in thousands).
|Assets||Liabilities and Stockholders' Equity|
Merchandise purchases payable
Total liabilities and equity
Actual and forecasted sales for selected months in the upcoming year are as follows:
|Month (in thousands)||Sales Revenue|
Monthly operating expenses are as follows:
|Wages and salaries||$750|
Cash dividends for the store of $710 thousand are declared during the third month of each quarter and are paid during the first month of the following quarter. Operating expenses, except insurance, rent, and depreciation are paid as incurred. The prepaid insurance is for five more months. Cost of goods sold is equal to 60% of sales. Ending inventories are sufficient for 150% of the next month’s cost of sales. Purchases during any given month are paid in full during the following month. Cash sales account for 50% of the revenue. Of the credit sales, 60% are collected in the next month and 40% are collected in the month after. Money can be borrowed and repaid in multiples of $100 thousand at an interest rate of 12% per year. The company desires a minimum cash balance of $2 million on the first of each month. At the time the principal is repaid, interest is paid on the portion of principal that is repaid. All borrowing is at the beginning of the month, and all repayment is at the end of the month. Money is never repaid at the end of the month it is borrowed.
(d) Prepare a cash budget for each month of the second quarter ending June 30. Include budgeted borrowings and repayments
Only use negative signs, if needed, for: excess receipts over disbursements, balance before borrowings and cash balances (beginning and ending).
Monthly Cash Budget (in thousands)Quarter Ending June 30
|Cash balance, beginning|
|Excess receipts over disb.|
|Balance before borrowings|
|Cash balance, ending|
Note computing cost of goods sold
|Cost of goods sold (60% of sales)||2160000||2280000||2100000||6540000||1920000|
|Budgeted cost of goods sold||$2160000||$2280000||$2100000||6540000|
|Add budgeted ending inventory||$3420000||$3150000||$2880000||2880000|
|Less begging invention||$3240000||$3420000||$3150000||$3240000|
Opening inventory = sales of the month *60%*150*
= sale of preceding month *60%*150%
For April ending inventory = may sales *60%*150%
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