Summer Breeze Inc. (SBI) is a retail outlet specializing in equipment and apparel for the summer months. SBI is trying to prepare a comprehensive budget for the first quarter of 2016. SBI has accumulated the following data:
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Balance Sheet as of December 31, 2015
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(Actual Values)
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Assets
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Liabilities and Equity
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Cash
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$ 18,000
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Accounts Payable
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$ 45,000
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Accounts Receivable
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95,000
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Other Payables
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30,400
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Inventory
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40,000
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Common Stock
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425,000
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Fixed Assets, net
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500,000
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Retained Earnings
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152,600
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Total Assets
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$653,000
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$653,000
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SBI sales are seasonal, growing through June and then declining through the rest of the year.
December 2015 sales were $200,000. November 2015 sales were $150,000.
Cost of goods sold is 60% of sales.
Fixed Selling, General & Administrative Expenses are $80,000 per month. Variable selling expenses (commissions) are 8% of sales. SG&A are paid in the month incurred. Commissions are paid the following month.
Depreciation is $192,000 annually.
Other Payables on the December 31, 2015 Balance Sheet includes Taxes Payable - $10,400 and Commissions Payable - $20,000.
The Income Tax rate is 40%. Taxes are paid the month after they are incurred.
SBI's inventory policy is to maintain enough inventory to meet 20% of next month's sales.
Sales are collected 60% in the current month, 30% in the month after sale and 10% in the second month after sale.
Purchases are paid 75% in the month of purchase and 25% in the month after purchase.
SBI has a line of credit with a local bank. The line of credit has a $100,000 limit and 6% rate. Borrowings are made on the last day of the month. Interest Expense is recognized the following month. Interest is paid the month after the expense is recognized.
SBI's policy is to maintain a minimum cash balance of $15,000
SBI pays an $800 dividend to its shareholders each month.
Projected sales are as follows:
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Sales Budget
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January
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February
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March
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April
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May
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Sales
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$300,000
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$520,000
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$660,000
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$900,000
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$920,000
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Use the information above to prepare SBI's comprehensive budget for the first quarter of 2016. SBI's budgets follow the format on the following pages. Round all balances to the nearest dollar.
Master Budget (Continued)
Summer Breeze Inc. Budget Template
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Budgeted Income Statement
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January
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February
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March
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Totals
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Sales
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Variable Costs:
Cost of Goods Sold
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Commissions
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Contribution Margin
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Fixed S,G&A Expenses
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Depreciation
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Income Before Interest
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Interest Expense
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Income Before Tax
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Tax Expense
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Net Income
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Purchases Budget
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January
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February
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March
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Totals
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Cost of Goods Sold
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Desired Ending Inventory
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Total Needs
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Beginning Inventory
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Total Purchases
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Cash Receipts Budget
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January
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February
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March
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Totals
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Sales
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Cash Collections:
Current Month
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1 Month Prior
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2 Months Prior
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Total Collections
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Cash Disbursements
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January
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February
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March
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Totals
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Purchases
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Payments for Purchases:
Current Month
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1 Month Prior
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SG&A Expenses Paid
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Commissions Paid
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Interest Paid
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Taxes Paid
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Dividends Paid
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Total Disbursements
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Master Budget (Continued)
Summer Breeze Inc. Budget Template
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Cash Budget
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January
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February
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March
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Totals
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Cash Receipts
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Cash Disbursements
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Excess/(Deficiency)
of Cash
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Beginning Balance
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Projected Ending Balance
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Borrowing/(Repayments) on Line of Credit
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Ending Cash Balance
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Balance Sheet as of March 31, 2016
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Assets
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Liabilities and Equity
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Cash
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Accounts Payable
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Accounts Receivable
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Commissions Payable
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Inventory
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Taxes Payable
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Interest Payable
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Notes Payable (Line of Credit)
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Fixed Assets, net
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Common Stock
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Retained Earnings
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Total Assets
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Total Liabilities & Equity
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