Hillyard Company, an office supplies specialty store, prepares its master budget
ID: 2488195 • Letter: H
Question
Hillyard Company, an office supplies specialty store, prepares its master budget on a quarterly basis. The following data have been assembled to assist in preparing the master budget for the first quarter:
As of December 31, (the end of the prior quarter), the company’s general ledger showed the following account balances:
Cash $48,000 (debit)
Accounts receivable $224,000 (debit)
Inventory $60,000 (debit)
Buildings and equipment, net $370,000 (debit)
Accounts payable $93,000 (credit)
Capital stock $500,000 (credit)
Retained earnings $109,000 (credit)
Actual sales for December and budgeted sales for the next four months are as follows: December $280,000, January $400,000, February $600,000, March $300,000 and April $200,000.
Sales are 20% for cash and 80% on credit. All payments on credit sales are collected in the month following sale. The accounts receivable at December 31 are a result of December credit sales.
The company’s gross margin is 40% of sales. (In other words, cost of goods sold is 60% of sales.)
Monthly expenses are budgeted as follows: salaries and wages, $27,000 per month; advertising, $70,000 per month; shipping, 5% of sales; other expenses, 3% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be $42,000 per quarter.
Each month’s ending inventory should equal 25% of the following month’s cost of goods sold.
One-half of the month’s inventory purchases is paid for in the month of purchase; the other half is paid in the following month.
During February, the company will purchase a new copy machine for $1,700 cash. During March, other equipment will be purchased for cash at a cost of $84,500.
During January, the company will declare and pay $45,000 in cash dividends.
Management wants to maintain a minimum cash balance of $30,000. The company has an agreement with a local bank that allows the company to borrow in increments of $1,000 at the beginning of each month. The interest rate on these loans is 1% per month and for simplicity we will assume that interest is not compounded. The company would, as far as it is able, repay the loan plus accumulated interest at the end of the quarter.
Required:
Schedule of Expected Cash Collections
January
February
March
Quarter
Cash sales
$80,000
Credit sales
$224,000
Total Collections
$304,000
Using the data above, complete the following statements and schedules for the first quarter. Submit your responses in an Excel spreadsheet:
Schedule of expected cash collections
Merchandise purchases budget
Merchandise Purchases Budget
January
February
March
Quarter
Budgeted Cost of Goods Sold
$240,000*
$360,000
Add desired ending inventory
$90,000**
Total needs
$330,000
Less beginning inventory
$60,000
Required purchases
$270,000
*$400,000 sales x 60% cost ratio = $240,000
** $360,000 x 25% = $90,000
Schedule of expected cash disbursements-merchandise purchases
Schedule of Expected Cash Disbursements-Merchandise Purchases
January
February
March
Quarter
December purchases
$93,000
$93,000
January purchases
$135,000
$135,000
$270,000
February purchases
March purchases
Total disbursements
$228,000
Schedule of expected cash disbursements-selling and administrative expenses
Schedule of Expected Cash Disbursements-Selling and Administrative Expenses
January
February
March
Quarter
Salaries and wages
$27,000
Advertising
$70,000
Shipping
$20,000
Other expenses
$12,000
Total disbursements
$129,000
Cash budget:
Cash Budget
January
February
March
Quarter
Cash balance, beginning
$48,000
Add cash collections
$304,000
Total cash available
$352,000
Less cash disbursements
For inventory
$228,000
For selling and admin expenses
$129,000
For purchase of equipment
------
For cash dividends
$45,000
Total cash disbursements
$402,000
Excess (deficiency) of cash
($50,000)
Financing needed
Cash balance, ending
Provide your answers in a clearly organized Excel spreadsheet.
Schedule of Expected Cash Collections
January
February
March
Quarter
Cash sales
$80,000
Credit sales
$224,000
Total Collections
$304,000
Explanation / Answer
Jan Feb March Total April Sales 400000 600000 300000 1300000 200000 SCHEDULE OF EXPECTED CASH COLLECTIONS: Jan Feb March Total Current cash sale (20%) 80000 120000 60000 260000 Collection from Accounts Receivable (80% in next month) 224000 320000 480000 1024000 Total cash collections 304000 440000 540000 1284000 Cash Disbursement Jan Feb March Total April Finished Goods Cost of Good sold 60% of sales 240000 360000 180000 780000 120000 Closing Inventory 25% of next month COGS 90000 45000 30000 30000 Total Finised Googd 330000 405000 210000 810000 Less: Beginning Inventory 60000 90000 45000 60000 270000 315000 165000 750000 Total Purchase price A 270000 315000 165000 750000 Cash Disbursement Jan Feb March Total December Purchases 93000 93000 january Purchses A*.5 135000 135000 270000 Feb Purchases 157500 157500 315000 March Purchases 82500 82500 Total B 228000 292500 240000 760500 Cash Expenses Cash payment of purchases 228000 292500 240000 760500 Schedule Selling & administration Expenses Salaries & Wages 27000 27000 27000 81000 Advertising 70000 70000 70000 210000 Shipping (5% of sales) 20000 30000 15000 65000 Other Expenses (3% of sales) 12000 18000 9000 39000 Total 129000 145000 121000 395000 CASH BUDGET FOR THE 3 MONTHS ENDING DECEMBER 31 Jan Feb March Qtr Cash balance 48000 30000 30800 48000 Add collections from customers 304000 440000 540000 1284000 Total cash available 352000 470000 570800 1332000 Less disbursements For Inventory 228000 292500 240000 760500 For selling Expenses 129000 145000 121000 395000 Equipment Purchase 1700 84500 86200 For cash dividend 45000 45000 Total disbursements 402000 439200 445500 1286700 Excess (deficiency) of receipts -50000 30800 125300 45300 over disbursements Less: Minimum Cash Balance (for understanding) 30000 30000 30000 30000 Total cash balance( needed)/Excess (for understanding) -80000 800 95300 15300 Financing: Borrowings 80000 80000 Repayments -92900 -92900 Interest -2400 -2400 Total financing 80000 0 -95300 -15300 Cash balance, ending (withminimum balance) 30000 30800 30000 30000
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