You have just been hired as a management trainee by Cravat Sales Company, a nati
ID: 2462846 • Letter: Y
Question
You have just been hired as a management trainee by Cravat Sales Company, a nationwide distributor of a designer’s silk ties. The company has an exclusive franchise on the distribution of the ties, and sales have grown so rapidly over the last few years that it has become necessary to add new members to the management team. You have been given responsibility for all planning and budgeting. Your first assignment is to prepare a master budget for the next three months, starting April 1. You are anxious to make a favorable impression on the president and have assembled the information below.
The company desires a minimum ending cash balance each month of $10,000. The ties are sold to retailers for $9 each. Recent and forecasted sales in units are as follows:
The large buildup in sales before and during June is due to Father’s Day. Ending inventories are supposed to equal 90% of the next month’s sales in units. The ties cost the company $5 each.
Purchases are paid for as follows: 50% in the month of purchase and the remaining 50% in the following month. All sales are on credit, with no discount, and payable within 15 days. The company has found, however, that only 25% of a month’s sales are collected by month-end. An additional 50% is collected in the following month, and the remaining 25% is collected in the second month following sale. Bad debts have been negligible.
All selling and administrative expenses are paid during the month, in cash, with the exception of depreciation and insurance expired. Land will be purchased during May for $24,000 cash. The company declares dividends of $12,000 each quarter, payable in the first month of the following quarter. The company’s balance sheet at March 31 is given below:
The company has an agreement with a bank that allows it to borrow in increments of $1,000 at the beginning of each month, up to a total loan balance of $100,000. The interest rate on these loans is 1% per month, and for simplicity, we will assume that interest is not compounded. At the end of the quarter, the company would pay the bank all of the accumulated interest on the loan and as much of the loan as possible (in increments of $1,000), while still retaining at least $10,000 in cash.
Prepare a master budget for the three-month period ending June 30. Include the following detailed budgets:
A schedule of expected cash collections from sales, by month and in total.
A schedule of expected cash disbursements for merchandise purchases, by month and in total.
You have just been hired as a management trainee by Cravat Sales Company, a nationwide distributor of a designer’s silk ties. The company has an exclusive franchise on the distribution of the ties, and sales have grown so rapidly over the last few years that it has become necessary to add new members to the management team. You have been given responsibility for all planning and budgeting. Your first assignment is to prepare a master budget for the next three months, starting April 1. You are anxious to make a favorable impression on the president and have assembled the information below.
Explanation / Answer
a) Sales Budget January February March April May June Total July August September Sales units 28000 25000 28000 33000 45000 61000 139000 42000 36000 38000 Selling price per unit 9 9 9 9 9 9 9 9 9 9 Sales value 252000 225000 252000 297000 405000 549000 1251000 378000 324000 342000 c) Expected cash collections from sales January February March April May June Total July August September Sales value 252000 225000 252000 297000 405000 549000 1251000 378000 324000 342000 January sales 63000 126000 63000 February sales 56250 112500 56250 56250 March sales 63000 126000 63000 189000 April sales 74250 148500 74250 297000 May sales 101250 202500 303750 101250 June sales 137250 137250 274500 137250 Total cash receipts 63000 182250 238500 256500 312750 414000 983250 375750 137250 d) Expected cash disbursement for purchases April May June Total closing inventory desired 40500 54900 37800 37800 sales units 33000 45000 61000 139000 Total units required 73500 99900 98800 176800 Less : opening inventory 29700 40500 54900 29700 Purchases for the month 43800 59400 43900 147100 Purchase price per unit 5 5 5 5 Purchase value 219000 297000 219500 735500 Cash Disbursed March purchase 81250 81250 April purchase 109500 109500 219000 May purchase 148500 148500 297000 June purchase 109750 109750 Total cash disbursed 190750 258000 258250 707000 b) Cash Budget April May June Total opening balance 13000 10550 10100 13000 Cash received from customers 256500 312750 414000 983250 Total cash avaialble 269500 323300 424100 996250 Less : Cash paid for purchases -190750 -258000 -258250 -707000 Selling & distribution expenses sales commission ( @ 1 per unit) -33000 -45000 -61000 -139000 wages & salaries -31800 -31800 -31800 -95400 utilities -18200 -18200 -18200 -54600 Miscellaneous -3200 -3200 -3200 -9600 Purchase of land -24000 -24000 Dividend paid ( for last quarter) -12000 -12000 Total cash disbursed -288950 -380200 -372450 -1041600 closing balance -19450 -56900 51650 -45350 Minimum balance required 10000 10000 10000 10000 Loan required 29450 66900 96350 loan taken 30000 67000 97000 Interest paid -2240 -2240 loan paid ( 51650 - 10000 -2240 rounded) -39000 -39000 final closing balance 10550 10100 10410 10410 Interest calculations loan taken in April 30000 Interest @1 % for 3 months 900 loan taken in May 67000 Interest @1 % for 2 months 1340 Total interest payable 2240 b) Budgeted Income Statement Sales Value ( for 3 months) 1251000 Less : Variable cost Cost of goods sold ( 139000 units * 5) 695000 Sales commission 139000 834000 Contribution Margin 417000 Less : Fixed expenses wages & salaries 95400 utilities 54600 Miscellaneous 9600 Insurance expenses ( 1000*3) 3000 Depriciation (1500*3) 4500 Interest expense 2240 169340 Net Income 247660 Less : Dividend payable 12000 Net Income transferred to retained earnings 235660 Balance Sheet as on June 30 Assets Cash ( refer cash budget) 10410 Accounts receivable ( May 101250, June 411750) 513000 Inventory (37800*5) 189000 Prepaid Insurance ( 12000 - 3000) 9000 Fixed Asset ( net of depriciation)( 153900 + 24000 - 4500) 173400 Total Assets 894810 Accounts payable ( June purchases) 109750 Dividends payable 12000 Loan payable ( 30000 + 67000 - 39000) 58000 Capital stock 300000 Retained earnings opening 179400 transferred from income statement 235660 415060 Total liabilities and stockholders equity 894810
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.