Hillyard Company, an office supplies specialty store, prepares its master budget

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:

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.

Monthly expenses are budgeted as follows: salaries and wages, $24,000 per month: advertising, $64,000 per month; shipping, 5% of sales; other expenses, 3% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be $43,540 for the quarter.

One-half of a 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 $1,900 cash. During March, other equipment will be purchased for cash at a cost of $74,500.

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.

2-a. Merchandise purchases budget 2-b. schedule of expected cash disbursements for merchandise purchases 3. cash budget 4. prepare an absorbtion costing income statement for the quarter ending March 31 5. prepare a balance sheet as of March 31

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:

Explanation / Answer

1)                       Schedule of Expected cash collections                      January Feburary March Quarter Cash sales 78800 118200 61000 258000 Credit sales 207,200 315200 472800 995,200 total collections 286000 433400 533800 1253200 Accounts receivable at march 31= 305,000*80%=244,000 2-a) Merchandise purchase budget January Feburary March Quarter April budgeted cost of goods sold 236400 354600 183000 774000 121200 Add:Ending inventory 88650 45750 30300 30,300 total needs 325050 400350 213300 804300 less Beginning inventory 59,100 88,650 45,750 59,100 Required purchases 265,950 311,700 167,550 745,200 2-b) Schedule of Expected cash disbursement for Merchandise purchase January Feburary March Quarter December purchases 87,825 87,825 january purchases 132975 132975 265950 Feburary purchases 155850 155850 311700 march purchases 83775 83775 total cash disbursement for purchases 220,800 288825 239625 749,250 Accounts payable= 83,775 3) Cash budget January Feburary March Quarter Beginning cash balance 49,000 30,680 38075 49,000 Add cash collections 286000 433400 533800 1253200 total cash available 335,000 464080 571875 1,302,200 less cash disbursements purchase of inventory 220,800 288825 239625 749,250 selling and adm expense 119520 135280 112400 367200 purchase of equipment 0 1,900 74,500 76400 cash dividends 45,000 0 0 45,000 total cash disbursement 385,320 426005 426525 1,237,850 Excess(Deficiency) of cash -50,320 38075 145350 64,350 Financing Borrowings 81,000 0 0 81,000 Repayments 0 0 -81,000 -81000 interest 0 0 -2,430 -2430 total financing 81,000 0 -83430 -2,430 ending cash balance 30,680 38075 61920 61,920 interest expense = 81000*1%*3 2430 4) income statememt Sales 1290000 cost of goods sold Beginning invnetory 59,100 Add purchases 745,200 cost of goods avaialble 804,300 less ending inventory 30,300 774,000 Gross profit 516,000 Selling and administrative exp Salaries and wages 72,000 Advertising 192,000 shiiping 5% of sales 64500 other expense 3% of sales 38700 Depreciation 43,540 410,740 operating income 105,260 less interest expense 2,430 Net income 102,830 5) Balance sheet Asses current assets cash 61920 Account receivable 244,000 inventory 30,300 total current assets 336,220 buildings and Equipment (net) (359000+1900+74500-43540) 391860 total assets 728,080 liabilities & stockholders Equity current liabilities Accounts payable 83,775 total current liabilities 83,775 Stockholders Equity common stock 500,000 Retained earnings (86,475+102830-45000) 144305 total stockholders equity 644,305 total liabilities & stockholders equity 728,080

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