Hillyard Company, an office supplies specialty store, prepares its master budget
ID: 2404638 • 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:
48,000
206,400
58,950
358,000
87,525
500,000
83,825
671,350
671,350
b. Actual sales for December and budgeted sales for the next four months are as follows:
258,000
393,000
590,000
304,000
201,000
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.
The company’s gross margin is 40% of sales. (In other words, cost of goods sold is 60% of sales.)
Monthly expenses are budgeted as follows: salaries and wages, $23,000 per month: advertising, $63,000 per month; shipping, 5% of sales; other expenses, 3% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be $43,380 for the quarter.
Each month’s ending inventory should equal 25% of the following month’s cost of goods sold.
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 $1,800 cash. During March, other equipment will be purchased for cash at a cost of $74,000.
During January, the company will declare and pay $45,000 in cash dividends.
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.
Required:
Using the data above, complete the following statements and schedules for the first quarter:
1. Schedule of expected cash collections:
2-a. Merchandise purchases budget:
2-b. Schedule of expected cash disbursements for merchandise purchases:
3. Cash budget:
4. Prepare an absorption costing income statement for the quarter ending March 31.
5. Prepare a balance sheet as of March 31.
Cash $48,000
Accounts receivable206,400
Inventory58,950
Buildings and equipment (net)358,000
Accounts payable $87,525
Common stock500,000
Retained earnings83,825
$671,350
$671,350
b. Actual sales for December and budgeted sales for the next four months are as follows:
December(actual) $258,000
January $393,000
February $590,000
March $304,000
April $201,000
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.
The company’s gross margin is 40% of sales. (In other words, cost of goods sold is 60% of sales.)
Monthly expenses are budgeted as follows: salaries and wages, $23,000 per month: advertising, $63,000 per month; shipping, 5% of sales; other expenses, 3% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be $43,380 for the quarter.
Each month’s ending inventory should equal 25% of the following month’s cost of goods sold.
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 $1,800 cash. During March, other equipment will be purchased for cash at a cost of $74,000.
During January, the company will declare and pay $45,000 in cash dividends.
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.
Required:
Using the data above, complete the following statements and schedules for the first quarter:
1. Schedule of expected cash collections:
2-a. Merchandise purchases budget:
2-b. Schedule of expected cash disbursements for merchandise purchases:
3. Cash budget:
4. Prepare an absorption costing income statement for the quarter ending March 31.
5. Prepare a balance sheet as of March 31.
Explanation / Answer
Solution 1 Cash collections Particulars Jan Feb Mar Total Cash sales (20 % of total sales) 78600 118000 60800 257400 Received from debtor (80 % of previous month sales) 206400 314400 472000 992800 Total 285000 432400 532800 1250200 Solution 2 a purchase budget Particulars Jan Feb Mar Total Closing stock (25% of next months sales*.60) 88500 45600 30150 164250 Add: sales*.60 235800 354000 182400 772200 Less: opening stock 58950 88500 45600 193050 Purchases 265350 311100 166950 743400 Solution 2 b Cash disbursements Particulars Jan Feb Mar Total Cash paymnets for purchase (1/2 of same month) 132675 155550 83475 371700 (1/2 of previous month) 87525 132675 155550 375750 Total 220200 288225 239025 Solution 3 Cash budget Particulars Jan Feb Mar Opening Cash 48000 30360 39535 Cash collections as per solution 1 285000 432400 532800 Cash payments: Cash paid for purchases as per solution 2b 220200 288225 239025 Salary & wages 23000 23000 23000 advertising 63000 63000 63000 Shipping 5% of sales 19650 29500 15200 other exp 3% of sales 11790 17700 9120 Copy machine 0 1800 0 Other equipment 0 0 74000 Dividend 45000 0 0 Closing Cash -49640 39535 148990 Loan taken (as to maintain minimum balance of 30000) 80000 0 -80000 Interest payment (80000*1/100*2) 0 0 -1600 Closing Cash after loan 30360 39535 68990 Solution 4 Income statement Particulars Amount Sales (393000+590000+304000) 1287000 Less: COGS (.60 of sales) 772200 Gross profit 514800 Less salary 69000 Less: advertisement 189000 less: Shipping 5% os sales 64350 Less: Other exp 3% of sales 38610 Less: depreciation 43380 Less: interest exp 1600 Profit 108860
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