The Country Store is a retail outlet for a variety of hardware and housewares. The owner is eager to prepare a budget and is especially concerned with her cash position. The company will have to borrow in order to finance purchases made in preparation for high expected sales during the busy last quarter of the year. When the company needs cash, borrowing occurs at the end of a month. When cash is available for repayments, the repayment occurs at the end of a month. The company pays interest in cash at the end of every month at a monthly rate of 1 per cent on the amount outstanding during that month.

Review the structure of the example in the chapter and then prepare the Country Store’s master budget for the months of October, November and December. The owner has gathered the data shown in Exhibit 7.7 to prepare the simplified budget. In addition, she will purchase equipment in October for €19,750 cash and pay dividends of €4,000 in December.

Exhibit 7.7

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Balance sheet as of 30 September 20X1 Assets Cash Accounts receivable Inventory Plant and equipment (net) Total assets Liabilities and stockholders' equity Interest payable Note payable Accounts payable Capital stock Retained earnings Total liabilities and stockholders' equity € 9,000 48,000 12,600 200,000 €269,600 0 0 18,300 180,000 71,300 €269,600 Budgeted expenses (per month): Wages and salaries Freight out as a percentage of sales Advertising Depreciation Other expense as a percentage of sales Minimum inventory policy as a percentage of next month's cost of goods sold Budgeted sales: September (actual) October November December January 20X2 € 7,500 6% € 6,000 € 2,000 4% 30% € 60,000 70,000 85,000 90,000 50,000