Hillyard Company, an office supplies specialty store, prepares its master budget
ID: 2402183 • Letter: H
Question
Hillyard Company, an office supplies specialty store, prepares its master budget on a quarterly basis. The following data have been assembled to assist in preparing the master budget for the first quarter:
As of December 31 (the end of the prior quarter), the company’s general ledger showed the following account balances:
Sales are 20% for cash and 80% on credit. All payments on credit sales are collected in the month following sale. The accounts receivable at December 31 are a result of December credit sales.
Monthly expenses are budgeted as follows: salaries and wages, $18,000 per month: advertising, $58,000 per month; shipping, 5% of sales; other expenses, 3% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be $42,580 for the quarter.
One-half of a month’s inventory purchases is paid for in the month of purchase; the other half is paid in the following month.
During February, the company will purchase a new copy machine for $1,300 cash. During March, other equipment will be purchased for cash at a cost of $71,500.
Management wants to maintain a minimum cash balance of $30,000. The company has an agreement with a local bank that allows the company to borrow in increments of $1,000 at the beginning of each month. The interest rate on these loans is 1% per month and for simplicity we will assume that interest is not compounded. The company would, as far as it is able, repay the loan plus accumulated interest at the end of the quarter.
Hillyard Company, an office supplies specialty store, prepares its master budget on a quarterly basis. The following data have been assembled to assist in preparing the master budget for the first quarter:
Required: Using the data above, complete the following statements and schedules for the first quarter: 1. Schedule of expected cash collections Schedule of Expected Cash Collections March January February $ 77,600 Quarter Cash sales Credit sales Total collections $ 77,600 202,400 0 280,000 202,400 280,000 $Explanation / Answer
1 Schdule of expected cash collection January February March Cash Sales (Current month) $77,600.0 $117,000.0 $59,800.0 Credit Sales (Previous Month) $202,400.0 $310,400.0 $468,000.0 Total $280,000.0 $427,400.0 $527,800.0 Schdule of expected cash collection December January February March Total sales $253,000 388000 585000 299000 Cash sales (20%) $50,600.0 $77,600.0 $117,000.0 $59,800.0 ($253000*20%) ($388000*20%) ($585000*20%) ($299000*20%) Credit sales $202,400.0 $310,400.0 $468,000.0 $239,200.0 ($253000*80%) ($388000*80%) ($585000*80%) ($299000*80%) 2 Merchandise Purchase Budget January February March Quarter Budgeted cost of goods sold $232,800.0 $351,000.0 $179,400.0 $763,200.0 Add: Ending inventory $87,750.00 $44,850.00 $29,400.00 $162,000.0 Total needs $320,550.00 $395,850.00 $208,800.00 $925,200.0 Less: Beginning Inventory 58200 $87,750.00 $44,850.00 $190,800.0 Required Purchases $262,350.00 $308,100.00 $163,950.00 $734,400.0 Calculation of cost of goods sold and ending inventory January February March April Total sales 388000 585000 299000 196000 Cost of Goods Sold $232,800.0 $351,000.0 $179,400.0 $117,600.0 (60% of sales) Ending Inventory $87,750.00 $44,850.00 $29,400.00 (25% of next month COGS) 2.b Schedule of expected cash disbursements for merchandise purchase January February March Quarter December $86,025 $86,025 January $131,175.00 $131,175.00 $262,350 February $154,050.00 $154,050.00 $308,100 March $81,975.00 $81,975 Total disbursements $217,200 $285,225 $236,025 $738,450 3 Cash Budget January February March Quarter Beginning Cash Balance $43,000 30760 30000 Add: Cash Collections $280,000.0 $427,400.0 $527,800.0 $1,235,200.0 Total Cash $323,000 $458,160 $557,800 $1,235,200 Less: Cash Disbursements Purchase of inventory $217,200 $285,225 $236,025 $738,450 Selling & Administrative $107,040 $122,800 $99,920 $329,760 Purchase of equipments 1300 17500 $18,800 Cash Dividends 45000 $45,000 Total cash disbursements $369,240 $409,325 $353,445 $1,132,010 (Excess/ deficiency ($46,240) $48,835 $204,355 $206,950 Financing: $0 Borrowing 77000 0 $77,000 Repayment 17295 59705 $77,000 Interest 1540 3311 $4,851 Total Financing 77000 18835 63016 $158,851 Ending Cash Balance $30,760 $30,000 $141,339 $202,099 Calculation of administrative and selling expense January February March Quarter salaries $18,000 $18,000 $18,000 $54,000 Advertising $58,000 $58,000 $58,000 $174,000 Shipping( 5% of sales) 19400 29250 14950 $63,600 Other ( 3% of sales) 11640 17550 8970 $38,160 Total $107,040 $122,800 $99,920 $329,760 Calculation of interest $ 77000 for 2 month 1540 $ (59705) for 3 month 1791.15 3331.15
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