Learning Resources

Problem

Phantom Boutique (2023)

Scenario
Lee is the owner and manager of Phantom Boutique which has just started to sell T-shirts in
Auckland. The selling price for each T-shirt is $80. Lee is about to begin the budget process for the
the first quarter (January, February, and March) of 2021. The estimated sales and purchases for the
first quarter are the following:

January February March

Budgeted Sales units 600 500 400
Budgeted purchases units 620 520 420

The following data shows sales and inventory purchase policies, and cash related information:
 All sales are on credit. Collections from accounts receivable normally have the following
pattern: 60 per cent in the month of sale, 30 per cent in the month following the sale and 10
per cent in the second month following the sale. Fortunately, Phantom Boutique does not
have much trouble with bad debts.
 The purchase price for each T-shirt is $40 and the business will pay for the inventory
purchases in the month following the purchase.
 Lee also expects to incur the following operating expenses for each month of this year.
These expenses must be paid in the month that they are incurred.

Rent expense $4,000 per month

Salary expense $3,200 per month
Marketing expense $2,600 in January
General and Administration (G&A) expenses $1,000 per month

Required
1. Prepare a sales budget for Phantom Boutique for the first quarter.

Sales Budget
First
January February March
Quarter
Budgeted Sales units 600 500 400 1500
Selling Price per unit X 80 80 80 80
Budgeted total sales revenue = 48000 40000 32000 120000
Expected cash collections: 4800 1200 19200 25200

Workings for cash collections:

Total sales on Cash collections Cash Cash

credit for January collections for collections for
February March
January 48000 28800 14400 4800
February 40000 24000 12000
March 32000 19200
TOTAL 25200

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 Problem: Phantom Boutique

2. Prepare a purchases budget for Phantom Boutique for the first quarter.

Retail Purchases Budget

First
January February March
Quarter
Budgeted Purchases units 620 520 420 1560
Purchase Price 40 40 40 40
= Cost of Purchases $ 24800 20800 16800 62400
Expected Cash Payments 0 24800 20800

3. Prepare an operating expenses budget for the first quarter.

Operating Expenses Budget

First
January February March
Quarter
Rent expenses
4000
Salaries expenses 3200
Marketing expense 2600
G&A Expenses 1000
Total operating expenses

Expected Cash Payments for

operating expenses

4. Prepare a cash budget for the first quarter of the year, assuming that at the end of December
2020, the business has a cash balance of $5,000.

Cash Budget
First
January February March
Quarter
Cash Receipts from Sales (1)
28800 38400 3600 103200
Less Cash payments:
Cash pay for purchases (2) 0 24800 20800 45600
Cash pay for operating
10800 8200 8200 27200
expenses (3)
Total Payments 10800 33000 29000 72800
=Net cash from operations 18000 5400 7000 30400
Add: Beginning Cash balance 5000 23000 28400 5000
=Ending Cash balance 23000 28400 35400 35400
*Given in the question

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 Problem: Phantom Boutique
5. Discuss how you can utilise the cash surplus.
Put money in short-term saving account and earn interest.
Leave cash in the bank as. a buffer for unanticipated events.
Spend more money on marketing as sales may be dropping.

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