Hillyard Company, an office supplies specialty store, prepares its master budget
ID: 2554666 • 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:
43,000
202,400
58,200
353,000
86,025
500,000
70,575
656,600
656,600
Actual sales for December and budgeted sales for the next four months are as follows:
253,000
388,000
585,000
299,000
196,000
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, $18,000 per month: advertising, $58,000 per month; shipping, 5% of sales; other expenses, 3% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be $42,580 for the quarter.
Each month’s ending inventory should equal 25% of the following month’s cost of goods sold.
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 $1,300 cash. During March, other equipment will be purchased for cash at a cost of $71,500.
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.
1(a). Schedule of expected cash collections:
1(b). Merchandise purchases budget:
1(c). Schedule of expected cash disbursements for merchandise purchases
Cash $43,000
Accounts receivable202,400
Inventory58,200
Buildings and equipment (net)353,000
Accounts payable $86,025
Common stock500,000
Retained earnings70,575
$656,600
$656,600
Explanation / Answer
EXPECTED CASH COLLECTIONS JAN FEB MARCH QUARTER Beginning Accounts receivable 202,400 202,400 Jan Month sales 77,600 310400 388,000 Feb Month Sales 117000 468000 585,000 March Month sales 59800 59,800 Total Cash Collections 280,000 427,400 527,800 1,235,200 PURCHASE BUDGET JAN FEB MARCH QUARTER APRIL Budgeted Sales in $ 388,000 585,000 299,000 1,272,000 196,000 Bdugeted Cost of goods sold(60%) 232,800 351,000 179,400 763,200 117,600 Add: Desired Ending Finished inventory 87,750 44,850 29,400 29,400 Total Needs 320,550 395,850 208,800 792,600 Less: Beginning Finished Inventory 58,200 87,750 44,850 58,200 Budgeted Purchase in $ 262,350 308,100 163,950 734,400 EXPECTED CASH PAYMENTS JAN FEB MARCH QUARTER Beginning Accounts payable 86,025 86,025 Jan month Purchases 131175 131175 262,350 Feb Month Purchases 154050 154050 308,100 March month Purchases 81975 81,975 Total Cash disbursement 217,200 285,225 236,025 738,450
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