Quantum Graphics makes custom T-shirts and other promotional products for student organizations and businesses. It plans to open a new location in Austin, Texas. It has secured a corporate contract with Dell Computer Corporation that will generate $5,500 per month in sales. With the new contract and potential student organizations from colleges in San Marcos to Georgetown, it needs to plan for its first quarter of operations its first quarter of operations.
Quantum Graphics expects cash sales from student organizations to be $2,750, $2,500, and $1,000 for Month 1, Month 2, and Month 3, respectively. Its corporate sales are always made on account. Based on previous history, Quantum Graphics expects to collect 100% of its corporate sales in the following following month of the original original sale (e.g. Month 1 account account sales are collected collected in Month 2, Month 2 account sales are collected in Month 3, etc.).
Quantum GraphicsAc€?c cost of goods sold is projected to be 40% of all sales. Its selling, general and administrative expenses are 16% of all sales (Donations 10% + Advertising 5% + Miscellaneous 1% = 16%). It does not keep any inventory on hand and pays its accounts payable balances in full in the following month of purchase. Quantum Graphics’ owner invested $1,500 in this venture. The $1,500 will be used to prepay the first three months of rent. Quantum Graphics signed a three month lease because it is in negotiations to purchase a rundown building for $3,000 located just south of Austin. It believes it will be able to buy the building at the asking price and will need to make a cash payment in Month 3 for the building.
If Quantum Graphics is short of cash, it has access to a line of credit with an interest rate of 10%. The total line of credit is $5,000. It will borrow the money at the beginning of the month to avoid a cash shortage. Quantum Graphics will only repay the loan when it has enough cash to pay the full balance and maintain an adequate ending cash balance. All loans that are repaid are repaid on the last day of the month. Quantum Graphics must always maintain an ending cash balance of at least $300.
Based upon the information provided, complete the operations budget and answer the questions in Connect. When making calculations always round up (i e 33 Af— 7% = 2.31. Round An ownerAc€?cs draw of $2,000 is made every month. (Note: sole proprietors and partnerships take ownerAc€?cs draws, stockholders receive dividends). questions in Connect. When making calculations always round up (i.e. 33 Af— 7% = 2.31, round up to 3.00). You may also assume that there are 30 days in each month of the first quarter.
SALES BUDGET SECTION 1: Projected Sales Month 1 Month 2 Month 3 Total Cash Sales Sales on Account Total Budgeted Sales SECTION 2: Schedule of Cash Receipts Curent Cash Sales Plus: Collections of A/R Total Budgeted Collections
INVENTORY PURCHASES BUDGET SECTION 1: Projected Purchases Month 1 Month 2 Month 3 Total Budgeted Cost of Goods Sold Plus: Desired Ending Inventory Total Inventory Needed Less: Budgeted Beg. Inventory Required Purchases (On account) SECTION 2: Schedule of Cash Payments A/P Cash Payments Total Budgeted Disbursements for Inventory
SELLING GENERAL & ADMINISTRATIVE EXPENSE SECTION 1: Projected SG&A Expense Month 1 Month 2 Month 3 Total Rent Expense Donations (10% of sales) Advertising (5% of sales) Miscellaneous (1% of sales) Total SG&A Expense SECTION 2: Schedule of Cash Payments Rent Expense Donations (10% of sales) Advertising (5% of sales) Miscellaneous (1% of sales) Total Payments for SG&A Expense
CASH BUDGET SECTION 1: Cash Receipts Month 1 Month 2 Month 3 Beginning Cash Balance Add: Cash Receipts Total Cash Available SECTION 2: Cash Payments For Inventory Purchases For S&A Expense For Interest Expense Building Purchase $3,000 Owner’s Draws Total Budgeted Disbursements SECTION 3: Financing Activities Surplus (Shortage) Borrowing (Repayment) Ending Cash Balance