Budget Problem

The manager of Newport Stationery Store is working on the final quarter’s budget for 2017. She has the
following information:

1.

New port Stationery Store

Balance Sheet as of September 30, 2017
Assets
Cash $12,000
Accounts Receivable 10,000
Inventory 63,600
Equipment 100,000
Liabilities
Accounts Payable None
2. Recent and anticipated sales

September October November December January

$40,000 $48,000 $60,000 $80,000 36,000

3. Credit Sales: Sales are 75% cash, 25% on credit. Credit accounts receivable are collected within
30 days of 30. The Accounts Receivable on September 30 are the result of September’s credit
sales (25% of 40,000).
4. Gross Margin average 30% of revenues
5. Monthly operating costs: Salaries and wages average 15% of revenues; rent 5%, other operating
costs excluding depreciation, 4%. These costs are paid cash each month. Depreciation is $1000
per month.
6. Inventory purchases: New port always keeps a basic minimum inventory of $30,000. Each month
it purchases just enough inventory to cover the following’s sales. The inventory on September
30 is the $30,000 minimum inventory plus cost of sales equal to 70% (100%- gross margin of
30%) of October’s anticipated sales of $480,000 [$30,000 + (0.7x 480,000) = $63,600). Terms on
inventory purchases are 2/10,n/30 (Payments on purchases are to be made in 30 days : a 2%
discount is available if full payment is made with in 10 days of purchases). Newport takes all
available discounts by paying in the month of purchase.
7. Equipment purchases: In October, Newport will spend $600 in light fixtures and in November
$400.
8. A minimum cash balance of $8000 must be maintained. All borrowing of $1000 occurs at the
beginning of the month; all repayments are to be made at month end. Loans are repaid when
sufficient cash is available, and interest is paid only at the time of repaying the principal. The
interest rate is 18% per year
Required:
Prepare the following schedules:
a. Cash collection schedule for sales
b. Cash disbursements for purchases
c. Cash disbursements for operating expenses (overheads)
d. Cash Budget