Question

Required: Prepare a master budget for San Marcos Collectibles for the third quarter of 2016. The following component budgets must be included:

Sales Budget

Cost of Goods Sold, Inventory and Purchases Budget

Operating Expense Budget

Budgeted Income Statement

Schedule of Expected Cash Collections

Schedule of Expected Cash Disbursements - Merchandise Purchases

Schedule of Expected Cash Disbursements - Operating Expenses

Combined Cash Budget

Budgeted Balance Sheet

San Marcos Collectibles 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 second year of operations and is preparing to build its master budget for the third quarter. The budget will detail each month’s activity and the total for the quarter. The master budget will be based on the following information:?

A)Sales were budgeted at $130,000 for June.   Expected sales are $126,000 for July, $121,000 for August, $110,000 for September, and $114,000 for October.?

B)The gross margin is 30% of sales

C)Sales are projected to be 45% for cash and 55% on credit. Credit sales are collected in the month following the sale. The June accounts receivable are a result of the June credit sales. There are no bad debts

D)Each month’s ending inventory should equal 60% of the next month’s budgeted cost of goods sold

E)Merchandise Inventory Purchases are paid as follows; 60% of a month’s inventory purchases are paid for in the month of purchase; the remaining 40% is paid for in the following month. The accounts payable at June 30 are the result of June purchases of inventory

F)Monthly operating expenses are as follows: commissions are 5% of sales; rent is $3,500 per month, other operating expenses (excluding depreciation) are 8% of sales. Assume these expenses are paid monthly. Deprecation is $1,000 per month

G)Equipment costing $5,000 will be purchased for cash in August. All equipment purchases are paid for in cash in the month purchased

H)Income tax is estimated to be 12% of operating income. Estimated taxes are accrued each month and paid in cash at the end of each quarter

I)Management established a new policy this quarter, and would like to maintain a minimum cash balance of at least $100,000 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 at the end of the quarter.

J)The balance sheet as of June 30, is as follows

Assets	June 30
Cash	$50,000
Accounts Receivable	71,500
Inventory	52,920
Plant & Equipment, net	105,000
Total assets	$279,420
Liabilities & Equity
Accounts Payable	$36,400
Retained Earnings	243,020
Total liabilities & equity	$279,420

Answer 1

1a. Sales Budget:

	July	August	September	Quarter
	$	$	$	$
Budgeted Sales Revenue	126,000	121,000	110,000	357,000

1b. Schedule of Expected Collection of Sales:

	July	August	September	Quarter
Cash Sales ( 45 % of Total Sales)	56,700	54,450	49,500	160,650
Collection of Credit Sales of
June	71,500			71,500
July		69,300		69,300
August			66,550	66,550
Total Collections	128,200	123,750	116,050	368,000

2. Inventory Purchases Budget:

	July	August	September	Quarter
Cost of Goods Sold	88,200	84,700	77,000	249,900
Desired Ending Inventory	50,820	46,200	47,880	47,880
Total Inventory Needed	139,020	130,900	124,880	297,780
Less: Beginning Inventory	52,920	50,820	46,200	52,920
Budgeted Inventory Purchases	86,100	80,080	78,680	244,860

2b. Schedule of Expected Payments for Merchandise Purchases:

	July	August	September	Quarter
Disbursements for Purchases of
June	36,400			36,400
July	51,660	34,440		86,100
August		48,048	32,032	80,080
September			47,208	47,208
Total Cash Payments for Merchandise Purchases	88,060	82,488	79,240	249,788

3. Schedule of Expected Cash Disbursements : Operating Expenses

	July	August	September	Quarter
Cash Operating Expenses
Sales Commission	6,300	6,050	5,500	17,850
Rent	3,500	3,500	3,500	10,500
Other Operating Expenses	10,080	9,680	8,800	28,560
Total Cash Operating Expenses	19,880	19,230	17,800	56,910
Depreciation	1,000	1,000	1,000	3,000
Total Operating Expenses	20,880	20,230	18,800	59,910

4. San Marcos Collectibles

Cash Budget

Forr the quarter ending September 30, 2016

	July	August	September	Quarter
Beginning Cash Balance	50,000	100,260	117,292	50,000
Add: Cash Receipts	128,200	123,750	116,050	368,000
Total Cash Available	178,200	224,010	233,342	418,000
Less: Disbursements for
Merchandise Purchases	88,060	82,488	79,240	249,788
Operating Expenses	19,880	19,230	17,800	56,910
Purchase of Equipment	0	5,000	0	5,000
Income Taxes	0	0	5,663	5,663
Total Cash Disbursements	107,940	106,718	102,703	317,289
Excess Cash ( Needed)	70,260	117,292	130.639	100,711
Financing
Borrowing	30,000	0		30,000
Interest		0	(600)	(600)
Repayment		0	(30,000)	(30,000)
Total Financing	30,000	30,000	(30,600)
Ending Cash Balance	100,260	117,292	100,039	100,039

5. San Marcos Collectibles:

Income Statement

For the quarter ended September 30, 2016

	$	$
Sales		357,000
Cost of Goods Sold		249,900
Gross Profit		107,100
Operating Expenses:
Sales Commission Expense	17,850
Rent Expense	10,500
Other Operating Expenses	28,560
Depreciation Expense	3,000
Total Operating Expenses		59,910
Income from Operations		47,190
Interest Expense		600
Income before Taxes		46,590
Income Tax Expense		5,663
Net Income		40,927

6. San Marcos Collectibles

Budgeted Balance Sheet

September 30, 2016

Assets	$
Cash	100,039
Accounts Receivable	60,500
Inventory	47,880
Plant and Equipment, net	107,000
Total Assets	315,419
Liabilities and Equity	$
Accounts Payable	31,472
Retained Earnings	283,947
Total Liabilities and Equity	315,419