Financial Managerial Accounting: P22-53B Watercooler Office Supply’s March 31, 2016

Financial Managerial Accounting
P22-53B Preparing an operating budget - sales budget, inventory, purchases and COGS budget; and S&A expense budget
Watercooler Office Supply’s March 31, 2016, balance sheet follows: 
Watercooler Office Supply
Balance Sheet
March 31, 2016
Current Assets:
Cash 35,000
Accounts receivable 15,000
Merchandise inventory 26,500
Prepaid insurance 1,500
Total Current Assets 78,000
Property, plant and equipment:
Equipment and fixtures 56,000
Less: Accumulate depreciation (26,000) 30,000
Total Assets $108,000
Current liabilities:
Accounts payable 11,000
Salaries and commissions payable 2,625
Total Liabilities 13,625
Stockholders' Equity
Common stock, no par 25,000
Retained earnings 69,375
Total Stockholders' Equity 94,375
Total Liabilities and Stockholders' Equity $108,000

The budget committee of Watercooler Office Supply has assembled the following data. 
a. Sales in April are expected to be $140,000. Watercooler forecasts that monthly sales will increase 2% over April sales in May. June’s sales will increase by 4% over April sales. July sales will increase 20% over April sales. Cash receipts are 80% in the month of the sale and 20% in the month following the sale. 
b. Watercooler maintains inventory of $9,000 plus 25% of the cost of goods sold budgeted for the following month. Cost of goods sold equal 50% of sales revenue. Purchases are paid 30% in the month of the purchase and 70% in the month following the purchase. 
c. Monthly salaries amount to $5,000. Sales commissions equal 5% of sales for that month. Salaries and commissions are paid 70% in the month incurred and 30% in the following month. 
d. Other monthly expenses are as follows: 
• Rent: $3,000, paid as incurred 
• Depreciation: $700 
• Insurance: $300, expiration of prepaid amount 
• Income tax: $2,000, paid as incurred 

1. Prepare Watercooler’s sales budget for April and May 2016. Round all amounts to the nearest dollar. 
2. Prepare Watercooler’s inventory, purchases, and cost of goods sold budget for April and May. 
3. Prepare Watercooler’s selling and administrative expense budget for April and May. 
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