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UGA ACCT 2102 - The Master Budget, Part II (Chapter 9)
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ACCT 2102 1st Edition Lecture 27 Outline of Last LectureI. BudgetsII. Types of Budgetsa. Operatingb. Financialc. Manufacturingd. MerchandisingIII. Operating Expenses BudgetOutline of Current Lecture:IV. Operating Expenses Budget ContinuedV. Cash BudgetsCurrent Lecture: The Master Budget, Part II (Chapter 9)IV. Operating Expenses Budget ContinuedMerchandising Budgets1. Sales BudgetSales RevenueAugust 250,000September 200,000October 216,000November 237,600December 250,0002. Purchases BudgetAug. Sept. Oct. Nov. Dec.Sales Revenue 250,000 200,000 216,000 237,600 250,000Cost of Sales 150,000 120,000 129,600 142,560 150,000Cost of EI 52,000 52,960 54,256 55,000 ?<Cost of BI> <55,000> <52,000> <52,960> <54,256> <55,000>Cost of Purchases 147,000 120,960 130,896 143,304 95,000These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.Cost of Sales = 60% x Sales RevenueCost of EI = 40,000 + 10% x next month’s Cost of SalesCost of BI = – (40,000 + 10% x current month’s Cost of SalesOperating Expenses BudgetThe next step in the budgeting process for both a manufacturer and a merchandiser is to prepare the Operating Expenses Budget. University Apparel’s budgeted monthly operating expenses are as follows:• Salaries and wages ($20,000 per month) – paid on the last day of the month• Sales commission (10% of current month sales) – paid on the 10th of the following monthOctober = 10%*216,000 November = 10%*237,600 • Lease expense ($10,000 per month) – paid on the 1st of the current month• Depreciation expense on equipment and leasehold improvements ($48,000 per year)48,000/12 months = $4,000/month• Utilities/internet/phone expense ($3,000 per month) – paid on the 15th of the following month • Insurance expense ($12,000 per year) – (paid semi-annually, in November and May)12,000/12 months = $1,000/month• Bad debt expense – 2% of credit sales. Bad debt expense is recognized in the month of sale.Cash sales represent 30% of University Apparel’s total sales. (Therefore, 70% represent sales on account.)October = 70%*2%*216,000 November = 70%*2%*237,600• Calculate the operating expenses for October and November.• Calculate the cash operating expenses for October and November.1. Operating ExpensesOctober NovemberSalaries 20,000 20,000Comm. 21,600 23,760Lease 10,000 10,000Deprec. 4,000 4,000Utilities 3,000 3,000Insurance 1,000 1,000Bad Debt 3,024 3,326Total Operating Expenses 62,624 65,0862. Cash Operating ExpensesOctober NovemberSalaries 20,000 20,000Comm. 20,000 21,600Lease 10,000 10,000Deprec. – (non-cash exp.) – (non-cash exp.)Utilities 3,000 3,000Insurance – 6,000Bad Debt – (non-cash exp.) – (non-cash exp.)Total Cash Operating Expenses 53,000 60,600*Commission is different from commission in operating expenses table. Why? Commission is paid on the 10th of the following month; therefore, your commission paid in October is from September sales. October commission paid = 10% x 200,000 (Sept. Sales Rev.)November commission paid = 10% x 216,000 (Oct. SR)*Depreciation and Bad Debt Expense are NON-CASH expenses. Therefore, they will never contain any value in a cash operating expenses table.At this point in the budgeting process, a Budgeted Income Statement could be also prepared.V. Cash BudgetsAfter the operating budgets are prepared, both manufacturers and merchandisers begin preparing the financial budgets. These budgets focus on expected cash inflows and cash outflows. • The Capital Expenditure Budget is prepared by determining the dollar amount and timing of capital investments.• The Cash Collections Budget answers the question: What are the company’s expected cash inflows for the period? What will company collect/receive/deposit?• The Cash Payments Budget answers the question: What are the company’s expected cash outflows for the period? What will the company pay?• The Combined Cash Budget answers the question: What is the company’s expected cash balance at the end of the period?• Ending Cash = Beginning Cash + Collections – PaymentCash sales represent 30% of University Apparel’s total sales. All other sales are made on account and carry payment terms of net 30 days. Historically, 80% of credit sales are collected in the month after sale, 18% are collected two months after sale, and the remaining 2% are never collected. Purchases are paid for in the month of purchase. All other information related to the cash operating expenses was included on the previous page.University Apparel plans to spend $35,000 in November to upgrade its computers. This information was found on the company’s capital expenditure budget. The company wants to maintain a $10,000 cash balance at month end. The company plans to start October with $12,000 of cash and has no outstanding debt. 1. Prepare the cash collections budget for October and November.2. Prepare the cash payments budget for October and November. 3. Prepare the combined cash budget for October and November.1. Cash Collections BudgetOctober NovemberCash Sales (30%) Oct. 216,000*30% Nov. 237,600*30%A/R (70%--1st month 80%) Sept. 200,000*70%*80% Oct. 216,000*70%*80%A/R (70%--2 nd month 18%) Aug. 250,000*70%*18% Sept. 200,000*70%*18%Cash Collections $208,300 $217,4402. Cash Payments BudgetOctober NovemberPurchases (Purchases Budget) 130,896 143,304Operating Exp. (Cash Exp. Budget) 53,000 60,600Capital Expenditures 0 35,000Cash Dividend – –Pay Down Debt – – Cash Payments 183,896 238,9043. Combined Cash BudgetOctober NovemberBeginning Cash 12,000 36,404Collections 208,300 217,440<Payments> <183,896> <238,904> Ending Cash 36,404 14,940November Beginning Balance comes from previous month’s ending balance.*At this point in the budgeting process, a Budgeted Balance Sheet could be also


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UGA ACCT 2102 - The Master Budget, Part II (Chapter 9)

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