Case 9-29 Master Budget with Supporting Schedules [LO9-2, LO9-4, LO9-8, LO9-9, L
ID: 2472923 • 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 $26,000 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 $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.
Create: A schedule of expected cash disbursements for merchandise purchases, by month and in total.
Create: A merchandise purchases budget in units and in dollars. Show the budget by month and in total.
Create: 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
Cash Payment for Purchase March April May June Sale 36000 39,000 53,000 69,000 Inventory Fom beg 32400 35,100 47,700 62,100 Inventory From End 35,100 47,700 62,100 44,100 Purchase Required 38,700 51,600 67,400 51,000 Purchase Cost per Unit 5 5 5 5 Purchase Amt. 193,500 258,000 337,000 255,000 AP 96,750 129,000 168,500 127,500 Total Cash payment 225,750 297,500 296,000 Merchaindises Purchase April May June Sale 39,000 53,000 69,000 Inventory From End 47,700 62,100 44,100 Total needs 86,700 115,100 113,100 Balance Sheet Cash 10,550 AR 520,000 Inventory (44100*5) 220,500 Prepaid Insurane 9,900 Fixed Assets net of Dep 101,050 Land 26,000 Total Assets 888,000 Acounts Payable 127,500 Dividend payable 10,000 Capital Stock 300,000 Retained Earing 319,500 Loan 131,000 Total Liabilities 888,000 Working Income Statement April May June Consolidated Sale Qty 39,000 53,000 69,000 161,000 Sale price per Unit 8 8 8 8 Total Sales revenue 312,000 424,000 552,000 1,288,000 Cost of ties (Sales qty*5) 195,000 265,000 345,000 805,000 Sales Comminsion 39,000 53,000 69,000 161,000 Wages & Salaries 31,900 31,900 31,900 95,700 Utilities 18,500 18,500 18,500 55,500 Insurance 1,100 1,100 1,100 3,300 Depriciation 1,500 1,500 1,500 4,500 Miscellaneous 3,400 3,400 3,400 10,200 Interest on Loan 1,800 1,800 Profit before dividend 21,600 49,600 79,800 151,000 Less:Dividend Paid 10,000 10,000 Retained Earing Transferred to B/S 11,600 49,600 79,800 141,000 Working Cash Collection April May June Qty 39,000 53,000 69,000 value 8 8 8 312,000 424,000 552,000 Collected from Feb Sale 56,000 Collected from March Sale 144,000 72,000 Collected from April Sale 78,000 156,000 78,000 Collected from may Sale 106,000 212,000 Collected from June Sale 138,000 278,000 334,000 428,000 AR Collected from may Sale 106,000 Collected from June Sale 414,000 Cash Cash April May June Total Opening Cash 19,000 10,450 10,150 19,000 Cash Collected 278,000 334,000 428,000 1,040,000 Total Cash Collection 297,000 344,450 438,150 1,059,000 Cash Disbursement 225,750 297,500 296,000 819,250 Dividend Payment 10000 10,000 Land 26000 26,000 Sales Comminsion 39,000 53000 69000 161,000 Wages & Salaries 31,900 31,900 31,900 95,700 Utilities 18,500 18,500 18,500 55,500 Miscellaneous 3,400 3,400 3,400 10,200 Total Cash Disbursements 328,550 430,300 418,800 1,177,650 Cash Deficit -31,550 -85,850 19,350 -118,650 Balance required Loan 42000 96,000 138,000 Interest on Loan 1,800 1,800 Loan Payment 7000 7,000 balance 10,450 10,150 10,550 10,550
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