You have just been hired as a management trainee by Cravat Sales Company, a nati

ID: 2472563 • 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 $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 $21,000 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 $140,000. 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.

11:22 AM ezto.mheducation.com AT&T; 78% Required 1. Prepare a master budget for the three-month period ending June 30. Include the following detailed budgets: a A sales budget by month and in total June Budgeted sales in units Selling price per unit Total salets 36,000 44,000 61,000 41,000 s 288.000 S 352,000 S 488,000 $ 1,128,000 b. A schedule of expected cash collections from sales, by month and in total. Schedule of Expected Cash Collections April February sales March sales April sales May sales June sales Total cash collections 44,000 108,000 72,000 0 S 44,000 162,000 288,000 264,000 122,000 880,000 54,000 144,000 88,000 72.000 176.000 122.000 370,000 S 224,000 $ 286,000 S c A merchandise purchases budget in units and in dollars. Show the budget by month and in total Merchandise Purchases Budget April June Budgeted sales in units Add: Budgeted ending inventory Total needs Deduct: Beginning inventory Required unit purchases 36,000 39.600 75.600 (32,400) 43.200 44,000 54,900 98.900 141,000 132,300 273,300 54,900 (126,900) 46,400 61,000 37,800 98,800 (39,600 5 59.300 43,900

Explanation / Answer

Cash buget

April

May

June

Cash receipt from sales

February

44000

March

108000

54000

April

72000

144000

72000

May

88000

176000

June

122000

Total

224000

286000

370000

Payment of purchase

March

87750

April

108000

May

148250

June

109750

Total

195750

256250

258000

Overhead payment

Total sales comission

36000

44000

61000

Wages and salaries

22200

Utilities

16100

Misscellaneous

3500

Total

77800

85800

102800

Land purchase

21000

Divident

12000

Next cash flow

-61550

-77050

9200

Opening cash

12000

450

10400

Interest (62000*2%)+(77000*1%)

1970

Preliminery cash balance

-49550

-76600

17630

closing cash

10000

Loan

60000

77000

-7600

Balancesheet

Cash

10030

Account receivable (88000+366000)

454000

Inventory

189000

Prepaid insurance (14400/12)*9

10800

Fixed assets net of depreciation (188950-4500+21000)

205450

Total assets

869280

Account payable

109750

Divident payable

12000

Capital stock

300000

Retained earning (183600+27500+43500+75530-12000)

318130

Loan

129400

869280

January

February

March

April

May

June

July

August

September

Sales unit

20000

22000

27000

36000

44000

61000

42000

44000

38000

Sales price per unit

Total sales(1)

160000

176000

216000

288000

352000

488000

336000

352000

304000

Closing stock

19800

24300

32400

39600

54900

37800

39600

34200

Opening stock

19800

24300

32400

39600

54900

37800

39600

34200

Total purchase units

39800

26500

35100

43200

59300

43900

43800

38600

3800

Per unit cost

Total purchase cost (2)

199000

132500

175500

216000

296500

219500

219000

193000

19000

Sales commision per unit

Total sales comission (3)

20000

22000

27000

36000

44000

61000

42000

44000

38000

Wages and salaries (4)

22200

Utilities

16100

Insurance

1200

Depreciation

1500

Misscellaneous

3500

Interest

1970

Income/expenses

-4500

-500

9500

27500

43500

75530

39500

43500

31500

Cash buget

April

May

June

Cash receipt from sales

February

44000

March

108000

54000

April

72000

144000

72000

May

88000

176000

June

122000

Total

224000

286000

370000

Payment of purchase

March

87750

April

108000

May

148250

June

109750

Total

195750

256250

258000

Overhead payment

Total sales comission

36000

44000

61000

Wages and salaries

22200

Utilities

16100

Misscellaneous

3500

Total

77800

85800

102800

Land purchase

21000

Divident

12000

Next cash flow

-61550

-77050

9200

Opening cash

12000

450

10400

Interest (62000*2%)+(77000*1%)

1970

Preliminery cash balance

-49550

-76600

17630

closing cash

10000

Loan

60000

77000

-7600

Balancesheet

Cash

10030

Account receivable (88000+366000)

454000

Inventory

189000

Prepaid insurance (14400/12)*9

10800

Fixed assets net of depreciation (188950-4500+21000)

205450

Total assets

869280

Account payable

109750

Divident payable

12000

Capital stock

300000

Retained earning (183600+27500+43500+75530-12000)

318130

Loan

129400

869280

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