Case 9-29 Master Budget with Supporting Schedules [LO9-2, LO9-4, LO9-8, LO9-9, L
ID: 2468717 • 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 $20,000 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 $114,000. 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.
Q.2 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
Income Statement April May June Consolidated Sale Qty 45,000 48,000 64,000 157,000 Sale price per Unit 8 8 8 8 Total Sales revenue 360,000 384,000 512,000 1,256,000 Cost of ties (Sales qty*5) 225,000 240,000 320,000 785,000 Sales Comminsion 45,000 48,000 64,000 157,000 Wages & Salaries 23,800 23,800 23,800 71,400 Utilities 22,600 22,600 22,600 67,800 Insurance 1,100 1,100 1,100 3,300 Depriciation 1,500 1,500 1,500 4,500 Miscellaneous 3,200 3,200 3,200 9,600 Interest on Loan 1,530 1,530 Profit before dividend 37,800 43,800 74,270 155,870 Less:Dividend Paid 10,000 10,000 Retained Earing Transferred to B/S 27,800 43,800 74,270 145,870 Balance Sheet Cash 10,170 AR 480,000 Inventory (44100*5) 220,500 Prepaid Insurane 9,900 Fixed Assets net of Dep 115,550 Land 20,000 Total Assets 856,120 Acounts Payable 126,250 Dividend payable 10,000 Capital Stock 300,000 Retained Earing 331,870 Loan 88,000 Total Liabilities 856,120 Working Cash Collection April May June Qty 45,000 48,000 64,000 value 8 8 8 360,000 384,000 512,000 Collected from Feb Sale 54,000 Collected from March Sale 136,000 68,000 Collected from April Sale 90,000 180,000 90,000 Collected from may Sale 96,000 192,000 Collected from June Sale 128,000 280,000 344,000 410,000 AR Collected from may Sale 96,000 Collected from June Sale 384,000 Cash Payment for Purchase and AP March April May June July Sale 34000 45,000 48,000 64,000 49,000 Inventory Fom beg 24300 40,500 43,200 57,600 Inventory From End 40,500 43,200 57,600 44,100 Purchase Required 50,200 47,700 62,400 50,500 Purchase Cost per Unit 5 5 5 5 Purchase Amt. 251,000 238,500 312,000 252,500 AP 109,750 119,250 156,000 126,250 Payment Required 229,000 275,250 282,250 Cash Cash April May June Total Opening Cash 12,000 10,400 10,550 12,000 Cash Collected 280,000 344,000 410,000 1,034,000 Total Cash Collection 292,000 354,400 420,550 1,046,000 Cash Disbursement 229,000 275,250 282,250 786,500 Dividend Payment 10000 10,000 Land 20000 20,000 Sales Comminsion 45,000 48000 64000 157,000 Wages & Salaries 23,800 23,800 23,800 71,400 Utilities 22,600 22,600 22,600 67,800 Miscellaneous 3,200 3,200 3,200 9,600 Total Cash Disbursements 333,600 392,850 395,850 1,122,300 Cash Deficit -41,600 -38,450 24,700 -76,300 Balance required Loan 52000 49,000 101,000 Interest on Loan 1,530 1,530 Loan Payment 13000 13,000 balance 10,400 10,550 10,170 10,170
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