Case 9-29 Master Budget with Supporting Schedules [LO9-2, LO9-4, LO9-8, LO9-9, L
ID: 2467064 • Letter: C
Question
Case 9-29 Master Budget with Supporting Schedules [LO9-2, LO9-4, LO9-8, LO9-9, LO9-10]
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 $8 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 $28,000 cash. The company declares dividends of $10,000 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 $150,000. 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.
A cash budget. Show the budget by month and in total. (Cash deficiency, repayments and interest should be indicated by a minus sign.)
A budgeted balance sheet as of June 30.
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
Solution:
1)
a) A sales budget by month and in total
Cravat Sales Company
sales budget for the three-month period ending June 30
April
May
June
Total
Budgeted Sales in Units
39,000
52,000
64,000
155,000
Budgeted Selling Price Per Unit
$8
$8
$8
$8
Budgeted Sales in dollars
$312,000
$416,000
$512,000
$1,240,000
b) A schedule of expected cash collections from sales, by month and in total
Cravat Sales Company
schedule of expected cash collections from sales for the three-month period ending June 30
April
May
June
Total
Budgeted Credit Sales in dollars
$312,000
$416,000
$512,000
$1,240,000
Collection Schedule
25% of sales are collected by month-end
$78,000
$104,000
$128,000
50% is collected in the following month of sales
$128,000
$156,000
$208,000
25% is collected in the second month following sale
$56,000
$64,000
$78,000
Total Cash Collection from Credit Sales
$262,000
$324,000
$414,000
$1,000,000
Working Note-1
Cravat Sales Company
Working note for schedule of expected cash collections from sales for the three-month period ending June 30
February
March
April
May
June
Budgeted Credit Sales in dollars
$224,000
$256,000
$312,000
$416,000
$512,000
Collection Schedule
25% of sales are collected by month-end
$56,000
$64,000
$78,000
$104,000
$128,000
50% is collected in the following month of sales
$112,000
$128,000
$156,000
$208,000
25% is collected in the second month following sale
$56,000
$64,000
$78,000
Total Cash Collection from Credit Sales
$56,000
$176,000
$262,000
$324,000
$414,000
c) A merchandise purchases budget in units and in dollars. Show the budget by month and in total.
Cravat Sales Company
merchandise purchases budget for the three-month period ending June 30
April
May
June
Total
Budgeted Sales in Units
39,000
52,000
64,000
155,000
Add: Ending Inventory (90% of next month sales unit)
46800
57600
41400
145,800
Less: Opening Inventory (Ending Inventory of Last Month)
(35100)
(46800)
(57600)
(139,500)
Purchase Requirement in Units
50,700
62,800
47,800
161,300
Working Note – 2
Cravat Sales Company
Working note for merchandise purchases budget for the three-month period ending June 30
March
April
May
June
July
Budgeted Sales in Units
32,000
39,000
52,000
64,000
46,000
Add: Ending Inventory (90% of next month sales unit)
35100
46800
57600
41400
Less: Opening Inventory (Ending Inventory of Last Month)
(35100.00)
(46800.00)
(57600.00)
Purchase Requirement in Units
67,100
50,700
62,800
47,800
46,000
d. A schedule of expected cash disbursements for merchandise purchases, by month and in total
Cravat Sales Company
Schedule of expected cash disbursements for merchandise purchases for the three-month period ending June 30
April
May
June
Total
Purchase Requirement in Units
50,700
62,800
47,800
Unit Cost
$5
$5
$5
Budgeted Purchase Requirement in dollars
$253,500
$314,000
$239,000
Schedule for Cash Disbursement
50% in the month of purchase
$126,750
$157,000
$119,500
50% in the following month
$167,750
$126,750
$157,000
Total Cash Disbursements for Merchandise Purchase
$294,500
$283,750
$276,500
$854,750
Working Note 3
Cravat Sales Company
Working for schedule of expected cash disbursements for merchandise purchases for the three-month period ending June 30
March
April
May
June
July
Purchase Requirement in Units
67,100
50,700
62,800
47,800
46,000
Unit Cost
$5
$5
$5
$5
$5
Budgeted Purchase Requirement in dollars
$335,500
$253,500
$314,000
$239,000
$230,000
Schedule for Cash Disbursement
50% in the month of purchase
$167,750
$126,750
$157,000
$119,500
50% in the following month
$167,750
$126,750
$157,000
Total Cash Disbursements for Merchandise Purchase
$167,750
$294,500
$283,750
$276,500
For rest parts -- please ask separate question
Cravat Sales Company
sales budget for the three-month period ending June 30
April
May
June
Total
Budgeted Sales in Units
39,000
52,000
64,000
155,000
Budgeted Selling Price Per Unit
$8
$8
$8
$8
Budgeted Sales in dollars
$312,000
$416,000
$512,000
$1,240,000
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