Prepare a cash Budget for the first two quarters
Terry's Equipment Center has been organized to sell a line of lawn and garden equipments. The company began operations on January 1 with the following assets.
Cash - $14,000
Inventory - 29,000
Land - 31,000
Buildings and equipments - $250,000
(Useful life 20 years, no residual value, of which $210,000 relates to selling and $40,000 to general and administrative activities)
Sales for January, February, and March (i.e., the first quarter) are expected to $140,000; they are expected to be $280,000 for the next three months, and $325,000 the three months after that. Certain expenses are expected to vary with sales as follows:
|
|
Percent of Sales Dollars
|
|
Cost of goods sold
|
60
|
|
Bad debts
|
2
|
|
Variable selling expenses
|
14
|
|
Variable administrative expenses
|
5
|
Other expenses not expected to vary with sales:
|
Selling
|
$25,000 per quarter
|
|
Administrative
|
18,550 per quarter
|
|
Depreciation
|
3,125 per quarter
|
Required:
Prepare an operating budget for the first and second quarters of operations of Terry's Equipment Center.