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 preparation of 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, $27,000 per month; advertising, $71,000 per month; shipping, 5% of sales; depreciation, $14,000 per month; other expenses, 3% of sales.

At the end of each month, inventory is to be on hand equal to 25% of the following month’s sales needs, stated at cost.

One-half of a month’s inventory purchases are paid for in the month of purchase; the other half are paid for in the following month.

During February, the company will purchase a new copy machine for $1,500 cash. During March, other equipment will be purchased for cash at a cost of $85,500.

The company must maintain a minimum cash balance of $32,000. An open line of credit is available at a local bank for any borrowing that may be needed during the quarter. All borrowing is done at the beginning of a month, and all repayments are made at the end of a month. Borrowings and repayments of principal must be in multiples of $1,000. Interest is paid only at the time of payment of principal. The annual interest rate is 12%. (Figure interest on whole months, e.g., 1/12, 2/12.)

Hillyard Company, an office supplies specialty store, prepares its master budget on a quarterly basis. The following data have been assembled to assist in preparation of the master budget for the first quarter:

Explanation / Answer

Hillyard Company Sales Budget For the Quarter ended March 30, January February March Quarter Budgeted Sales in Dollars 390000 570000 290000 1250000 Total Budgeted Sales 390000 570000 290000 1250000 Hillyard Company Expected Cash Collection For the Quarter ended March 30, January February March Quarter Account Receivable 12/31(80% of 290000) 232000 232000 January-Sales 20% of 390000 78000 78000 80% of 390000 312000 312000 February- Sales 20% of 570000 114000 114000 80% of 570000 456000 456000 March -Sales 20% of 290000 58000 58000 Total Cash Collection 310000 426000 514000 1250000 Hillyard Company Inventory Purchase Budget For the Quarter ended March 30 January February March Quarter Budgeted Cost of Goods Sold(60% of Sales) 234000 342000 174000 750000 Add: Desired Ending Inventory(25% of Next Month's COGS) 85500 43500 30000 30000 Total Needs 319500 385500 204000 780000 Less: Beginning Inventory 58500 85500 43500 58500 Required Inventory Purchase 261000 300000 160500 721500 Hillyard Company Cash Disbursement for Purchase For the Quarter ended March 30 January February March Quarter December Purchase 95000 95000 January Purchase(50% 0f 264000) 130500 130500 261000 February Purchase(50% 297000) 150000 150000 300000 March Purchase(50% of 159000) 80250 80250 Total cash Disbursement for Purchase 225500 280500 230250 736250 *Account Payable of December for Purchase Tk95000 will be paid in January of next year Hillyard Company Cash Disbursement for operating Expenses For the Quarter ended March 30, January February March Quarter Salaries and Wages 27000 27000 27000 81000 Advertising 71000 71000 71000 213000 Shipping (5% of Sales) 19500 28500 14500 62500 Other Expenses(3% of Sales) 11700 17100 8700 37500 Total Cash Disbursement 129200 143600 121200 394000 Hillyard Company Cash Budget For the Quarter ended March 30 January February March Quarter Beginning Cash Balance 46000 33500 33900 46000 Add: Cash Collection 310000 426000 514000 1250000 Total Cash Available 356000 459500 547900 1296000 Less: Cash Disbursement Inventory Purchase 225500 280500 230250 736250 Operating Expense 129200 143600 121200 394000 Equipment Purchase 0 1500 85500 87000 Cash Dividend 44000 0 0 44000 Total Cash Disbursement 398700 425600 436950 1261250 Excess/Deficiency -42700 33900 110950 34750 Financing: Borrowing 76200 76200 Repayments 0 -76200 -76200 Interest(76200*12%*3/12) 0 -2286 -2286 Total Financing 76200 0 -78486 -2286 Ending Cash Balance 33500 33900 32464 32464 Hillyard Company Budgeted Income Statement For the Quarter ended March 30 Sales 1250000 Less:Cost of goods sold 750000 Gross Margin 500000 Less:Operating Expenses 394000 Depreciation (14000*3) 42000 Operating Income 64000 Less:Interest Expense 2286 Net Income 61714 Hillyard Company Budgeted Balance Sheet For the Quarter ended March 30 Current Assets Cash 32464 Account Receivable(80% of 290000) 232000 Inventory 30000 Total Current Assets 294464 Building and Equipment 420000 (Beginning 375000+New purchase 87000-Depreciation 42000) Total Assets 714464 Liabilities and Equity Account Payable(50% of 160500) 80250 Equity: Common Stock 512000 Retained Earnings: Beginning 104500 add:Net Income 61714 Total 166214 Less:Cash Dividend 44000 122214 Total Liability and Equity 714464

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