The Pastry Hut The Pastry Hut (PH) sells a wide variety of pastries on the west
ID: 2435391 • Letter: T
Question
The Pastry Hut
The Pastry Hut (PH) sells a wide variety of pastries on the west end of St. Croix. The budget you
are to prepare is for the first quarter of the calendar year (January, February & March).
Expected Sales
Sales in November were $35,000. Monthly sales are forecasted as follows:
December $25,000
January $28,000
February $30,000
March $33,000
April $24,000
Customers pay 80% of the sales in cash and 20% of the sales are on credit. Collection of credit
sales are in the month following the month of the sale. The $5,000 in accounts receivable on
December 31 represents credit sales made in December. Uncollectable accounts are ignored.
Balance Sheet
The following is the balance sheet as of December 31:
Assets
Cash $10,000
Accounts Receivable 5,000
Inventory 4,200
Equipment & Fixtures 12,000
Accumulated Depreciation (1,200)
Total Assets $30,000
Liabilities
Accounts payable $ 7,950
Accrued wages 5,250
Total Liabilities
Owner’s Equity 16,800
Total Liabilities & Owner’s Equity $30,000
Planned Inventory Levels
PH maintains a raw material inventory amount equal to 50% of the
cost of goods sold for the following month. The costs of merchandise sold averages 30% of
sales. The inventory on December 31 is 50% of the cost of goods sold for January
(.5*.3*28000). Pastry Hut pays for its purchases in the month following the purchase.
Wages
PH pays wages twice a month, with payments lagging half a month after they are
earned. The monthly wages are $10,500. The accrued wages on December 31 ($5,250)
represents the unpaid half of December’s wages.
Capital Expenditures and Operating Expenditures
PH plans to buy new fixtures for $12,000
Cash in January. PH has other month expenses as follows:
Miscellaneous expenses 2% of sales, paid as incurred
Rent $1,500, paid as incurred
Depreciation (including new fixtures) $225 per month
Cash Balances
To meet cash needs, PH has used short term loans from local banks paying them
back as cash comes in. Assume that PH wants to maintain a minimum $10,000 cash balance at
the end of each month and can borrow or repay loans in multiples of $1,000. The borrowing
occurs at the beginning and the repayment at the end of the months in question. PH pays
interest in cash at the time it repays the related loan. The interest rate is 6% per year.
Required:
1. Using the data given, prepare the following budgets and schedules for each of the
months of the planning horizon
a. Sales budget
b. Cash collections
c. Purchases and cost of goods sold budget
d. Cash disbursements for purchases
e. Operating expense budget
f. Cash disbursements for operating expenses
2. Using the budgets and schedules prepare a budgeted income statement for the three
months January through March.
3. Prepare the following budgets and forecasted income statements
a. Capital budget
b. Cash budget (including details of borrowings, repayments and interest for each
month)
c. Budgeted balance sheet as of March 31.
Explanation / Answer
Sales Budget for the quarter ended March 31 January February March Expected Sales 28000 30000 33000 CashCollections for the quarter ended March 31 January February March Cash Sales 22400 24000 26400 Collection from Credit Sales 5000 5600 6000 {Jan- 5,000(given) Feb- 28000 * 20% March - 30,000 * 20%} Total Cash Collections 27400 29600 32400 Purchases and Cost of Goods Sold Budget January February March Cost of Merchandise sold 8400 9000 9900 inventory 4200 4500 4950 Purchases (COMS- Opening Inventory+ Closing 8400 9300 10350 inventory ) Cash Disbursements for purchases January February March Cash payments 8400 8400 9000 Cash Disbursements for Operating Expenses Wages 10500 10500 10500 Misc Expenses 560 600 660 Rent 1500 1500 1500 Total 12560 12600 12660 Operating Expense Budget Wages 10500 10500 10500 Misc Expenses 560 600 660 Rent 1500 1500 1500 Depreciation 225 225 225 Total 12785 12825 12885 Budgeted Income Statement Sales 28000 30000 33000 Less: Cost of Merchandise sold 8400 9000 9900 Gross profit 19600 21000 23100 Less: Budgeted Operating Expenses 12785 12825 12885 Net Income 6815 8175 10215 Capital Expenditure Budget Purchase of fixtures 12000 Cash Budget Opening Balance 10000 10215 Cash Collections 27400 29600 32400 Less: Cash Disbursements For purchases 8400 8400 9000 For Operating Expenses 12785 12825 12885 For Fixtures 12000 Amount remaining 4215 Balance required 10,000 Amount borrowed 6000 Amount repaid 6000 Closing Balance 10215 12590 10515
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