\"We really need to get this new material-handling equipment in operation after
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"We really need to get this new material-handling equipment in operation after the new year begins. I hope we can finance it largely with cash and marketable securities but if necessary we can get a short- term loan down at MetroBank." This statement by Beth Davis-lowry, president of Global Electronics Company, concluded a meeting she had called with the firm's top management. Global is a small, rapidly growing wholesaler of consumer electronic products. The firm's main product lines are small kitchen appliances and power tools. Marcia Wilcox, Global Electronics' general manager of marketing, has recently completed a sales forecast. She believes the company's sales during the first quarter of 20x1 will increase by 10 percent each month over the previous month's sales. Then Wilcox expects sales to remain constant for several months. Global's projected balance sheet as of December 21, 20xo is as follows: Cash 70,000 Accounts receivable 540,000 Marketable securities 30,000 Inventory 308,000 Building an equipment (net of accumulated appreciation) 1,252,000 Total assets 2,200,000 Accounts payable 352,800 Bond interest payable 25,000 Property taxes payable 7,200 Bonds payable (10%; due in 20x6) 600,000 Common stock 1,000,000 Retained earnings 215,000 2,200,000 Jack Hanson, the assistant controller, is now preparing a monthly budget for the first quarter of 20x1. In the process, the following information has been accumulated: 1) Projected sales for December 20x0 are $800,000. Credit sales typically are 75 percent of total sales. Global's credit experience indicates that 10 percent of the credit sales are collected during the month of sale, and the remainder are collected during the following month. 2) Global Electronics' cost of goods sold generally runs at 70 percent of sales. Inventory is purchased on account, and 40 percent of each month's purchases are paid during the month of purchase. The remainder is paid during the following month. In order to have adequate stocks of inventory on hand, the firm attempts to have inventory at the end of each month equal to half of the next month's projected cost of goods sold. 3) Hanson has estimated that Global's monthly expenses will be as follows: Salaries 42,000 Advertising and promotion 32,000 Administrative salaries 42,000 Depreciation 50,000 Interest on bonds 5,000 Property taxes 1,800 In addition, sales commissions run at a rate of 1 percent of sales. 4) Global Electronics' president, Davies-Lowrdy, has indicated that the firm should invest $250,000 in an automated inventory-handling system to control the mvement of inventory in the firm's warehouse just after the new year begins. These equipment purchases will be financed primarily from the firm's cash and marketable securities. However,Davies-Lowry believes that the company needs to keep a minimum cas balance of $50,000. If necessary, the remainder of the equipment purchases will be financed using short-term credit from a local bank. The minimum period for such a loan is three months. Hanson believes short-term interest rates will be 10 percent per year at the time of the equipment purchases. If a loan is necessary, Davies-Lowry has decided it should be paid off by the end of the first quarter if possible. 5) Global Electroncs' board of directors has indicated an intention to decleare and pay dividends of $100,000 on the last day of each quarter. 6) The interest on any short-term borrowing will be paid when the loan is repaid. Interest on Global Electronics' bonds is paid semiannually on January 31 and July 31 for the preceding six-month period. 7) Property taxes are paid semiannually on February 28 and August 31 for the preceding six-month period. Required: Prepare Global Electronics Company's master budget for the first quarter of 20x1 by completing the follwing schedules and statements: PROVIDE PURCHASES BUDGET 20x0 20x1 December January February March 1st Quarte Budgeted cost of goods sold Add: Desired endin inventory Total goods needed Less: Expected beginning inventory Purchases "We really need to get this new material-handling equipment in operation after the new year begins. I hope we can finance it largely with cash and marketable securities but if necessary we can get a short- term loan down at MetroBank." This statement by Beth Davis-lowry, president of Global Electronics Company, concluded a meeting she had called with the firm's top management. Global is a small, rapidly growing wholesaler of consumer electronic products. The firm's main product lines are small kitchen appliances and power tools. Marcia Wilcox, Global Electronics' general manager of marketing, has recently completed a sales forecast. She believes the company's sales during the first quarter of 20x1 will increase by 10 percent each month over the previous month's sales. Then Wilcox expects sales to remain constant for several months. Global's projected balance sheet as of December 21, 20xo is as follows: Cash 70,000 Accounts receivable 540,000 Marketable securities 30,000 Inventory 308,000 Building an equipment (net of accumulated appreciation) 1,252,000 Total assets 2,200,000 Accounts payable 352,800 Bond interest payable 25,000 Property taxes payable 7,200 Bonds payable (10%; due in 20x6) 600,000 Common stock 1,000,000 Retained earnings 215,000 2,200,000 Jack Hanson, the assistant controller, is now preparing a monthly budget for the first quarter of 20x1. In the process, the following information has been accumulated: 1) Projected sales for December 20x0 are $800,000. Credit sales typically are 75 percent of total sales. Global's credit experience indicates that 10 percent of the credit sales are collected during the month of sale, and the remainder are collected during the following month. 2) Global Electronics' cost of goods sold generally runs at 70 percent of sales. Inventory is purchased on account, and 40 percent of each month's purchases are paid during the month of purchase. The remainder is paid during the following month. In order to have adequate stocks of inventory on hand, the firm attempts to have inventory at the end of each month equal to half of the next month's projected cost of goods sold. 3) Hanson has estimated that Global's monthly expenses will be as follows: Salaries 42,000 Advertising and promotion 32,000 Administrative salaries 42,000 Depreciation 50,000 Interest on bonds 5,000 Property taxes 1,800 In addition, sales commissions run at a rate of 1 percent of sales. 4) Global Electronics' president, Davies-Lowrdy, has indicated that the firm should invest $250,000 in an automated inventory-handling system to control the mvement of inventory in the firm's warehouse just after the new year begins. These equipment purchases will be financed primarily from the firm's cash and marketable securities. However,Davies-Lowry believes that the company needs to keep a minimum cas balance of $50,000. If necessary, the remainder of the equipment purchases will be financed using short-term credit from a local bank. The minimum period for such a loan is three months. Hanson believes short-term interest rates will be 10 percent per year at the time of the equipment purchases. If a loan is necessary, Davies-Lowry has decided it should be paid off by the end of the first quarter if possible. 5) Global Electroncs' board of directors has indicated an intention to decleare and pay dividends of $100,000 on the last day of each quarter. 6) The interest on any short-term borrowing will be paid when the loan is repaid. Interest on Global Electronics' bonds is paid semiannually on January 31 and July 31 for the preceding six-month period. 7) Property taxes are paid semiannually on February 28 and August 31 for the preceding six-month period. Required: Prepare Global Electronics Company's master budget for the first quarter of 20x1 by completing the follwing schedules and statements: PROVIDE PURCHASES BUDGET 20x0 20x1 December January February March 1st Quarte Budgeted cost of goods sold Add: Desired endin inventory Total goods needed Less: Expected beginning inventory PurchasesExplanation / Answer
* AFTER FIRST QTR SALES REMAINS CONSTANT THEREFORE COGS REMAINS SAME IN APRIL.
3. PURCHASE BUDGET FOR FIRST QTR 20X1 DEC JAN FEB MAR APR TOTAL Budgeted cost of goods sold 560000 616000 677600 745360 745360 2038960 Add: Desired endin inventory 308000 338800 372680 372680 1084160 Total goods needed 868000 954800 1050280 1118040 3123120 Less: Expected beginning inventory 308000 338800 372680 1019480 Purchases 646800 711480 745360 2103640 * COGS FROM COGS STATEMENT 2 * CLOSING STOCK IS 1/2 OF NEXT MONTH'S COGS (JAN=677600/2), (FEB=745360/2), (MAR=745360/2)* AFTER FIRST QTR SALES REMAINS CONSTANT THEREFORE COGS REMAINS SAME IN APRIL.
1. SALES BUDGET FOR FIRST QTR 20X1 DEC JAN FEB MAR TOTAL SALES 800000 880000 968000 1064800 2912800 10% INCREASE IN SALE IN EVERY MONTH FROM PREVIOUS SALE (JAN=800000*10%),(FEB=880000*10%), (MAR=968000*10%) 2. COGS BUDGET FOR FIRST QTR 20X1 DEC JAN FEB MAR TOTAL COGS 560000 616000 677600 745360 2038960 COGS 70% OF SALES (JAN= 880000*70%), (FEB=968000*70%) (MAR=1064800*70%)Related Questions
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