Required: Prepare a master budget for Bobcat Merchandising Inc. for the first quarter of 2017. The following component budgets must be included:
1. Sales Budget
2. Cost of Goods Sold, Inventory and Purchases Budget
3. Operating Expense Budget
4. Budgeted Income Statement
5. Schedule of Expected Cash Collections
6. Schedule of Expected Cash Disbursements - Merchandise Purchases
7. Schedule of Expected Cash Disbursements - Operating Expenses
8. Combined Cash Budget
9. Budgeted Balance Sheet

Bobcat Merchandising Inc. 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 third year of operations and is preparing to build its master budget for the first quarter of next year. 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 $90,000 for December. Expected sales are $88,000 for January, $92,000 for February, $94,000 for March, and $96,000 for April.

b. The gross margin is 35% of sales.

c. Sales are projected to be 75% for cash and 25% on credit. Credit sales are collected in the month following the sale. The December accounts receivable are a result of the December credit sales. There are no bad debts.

d. Each month’s ending inventory should equal 85% of the next month’s budgeted cost of goods sold.

e. Merchandise Inventory Purchases are paid as follows; 70% of a month’s inventory purchases are paid for in the month of purchase; the remaining 30% is paid for in the following month. The accounts payable at December 31 are the result of December purchases of inventory.

f. Monthly operating expenses are as follows: commissions are 7% of sales; rent is $2,800 per month, other operating expenses (excluding depreciation) are 4% of sales. Assume these expenses are paid monthly. Deprecation is $1,200 per month.

g. January equipment purchases cost $7,500, and March equipment purchases cost $10,000. All equipment purchases are paid for in cash in the month purchased.

h. Income tax is estimated to be 18% of operating income. Estimated taxes are accrued each month and paid in cash in the last month of the quarter.

i. Management 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 projected balance sheet as of December 31, is as follows:

Assets December 31
Cash $82,500.00
Accounts Receivable 22,500.00
Inventory 48,620.00
Plant & Equipment, net 106,330.00
Total assets $259,950.00

Liabilities & Equity
Accounts Payable $17,218.50
Retained Earnings 242,731.50

Required: Prepare a master budget for Bobcat Merchandising Inc. fo...