ABC Company is considering whether to open a new distribution center. The center would open January 1, 2015. To make the decision, the planning committee requires a master budget for the center’s first quarter of operation (January, February, and March of 2015).

Required:

You are to construct the first quartermaster budget based on the following expectations:

a. January sales are estimated to be $400,000 of which $100,000 will be cash sales and $300,000 will be on credit. The company expects sales to grow 10% per month for the first few months of operation. Prepare a sales budget for the first quarter.

b. The company expects to collect 100% of accounts receivable in the month following the sale. Prepare a schedule of expected cash receipts for the first quarter.

c. Use the information developed in requirements a and b to determine the amount of accounts receivable on the March 31 pro forma balance sheet and the number of sales on the first quarter pro forma income statement.

d. Cost of goods sold will be 60% of sales. Company policy is to budget an ending inventory balance equal to 25% of the next month’s projected cost of goods sold. Assume ABC Company expects April cost of goods sold to be $314,000. Prepare an inventory purchases budget.

Answer rating: 100% (QA)

a Sales will grow 10 per month b c Ac... View the full answer