Hillyard Company, an office supplies specialty store, prepares its master budget
ID: 2562411 • 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:
59,000
215,200
60,600
369,000
90,825
500,000
112,975
703,800
703,800
Actual sales for December and budgeted sales for the next four months are as follows:
269,000
404,000
601,000
316,000
212,000
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, $34,000 per month: advertising, $62,000 per month; shipping, 5% of sales; other expenses, 3% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be $45,140 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 $2,900 cash. During March, other equipment will be purchased for cash at a cost of $79,500.
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:
Using the data above, complete the following statements and schedules for the first quarter:
1. Schedule of expected cash collections:
2-a. Merchandise purchases budget:
2-b. Schedule of expected cash disbursements for merchandise purchases:
3. Cash budget:
4. Prepare an absorption costing income statement for the quarter ending March 31.
5. Prepare a balance sheet as of March 31.
Cash $59,000
Accounts receivable215,200
Inventory60,600
Buildings and equipment (net)369,000
Accounts payable $90,825
Common stock500,000
Retained earnings112,975
$703,800
$703,800
Explanation / Answer
Solution:
1) Schedule of Expected Cash Collections
Schedule of Expected Cash Collections
January
February
March
Quarter
Cash Sales (20% of total sales)
$80,800
(404,000*20%)
$120,200
(601,000*20%)
$63,200
(316,000*20%)
Credit Sales
$215,200
(Dec AR)
$323,200
(404,000*80%)
$480,800
(601,000*80%)
Total Collections
$296,000
$443,400
$544,000
$1,283,400
2-a) Merchandise Purchase Budget
Merchandise Purchase Budget
January
February
March
Quarter
Budgeted cost of goods sold
$242,400
$360,600
$189,600
Add desired ending inventory (25% of next month’s COGS)
$90,150
$47,400
$31,800
(April COGS 212,000*60%*25%)
Total needs
$332,550
$408,000
$221,400
Less beginning inventory (Last month ending inventory)
$60,600
$90,150
$47,400
Required purchases
$271,950
$317,850
$174,000
$763,800
2-b) Schedule of expected cash disbursements for merchandise purchases
Schedule of expected cash disbursements for merchandise purchases
January
February
March
Quarter
December purchases
$90,825
January purchases
$135,975
(Jan 271950/2)
$135,975
(Jan 271950/2)
February purchases
$158,925
(317850/2)
$158,925
(317850/2)
March purchases
$87,000
(174000/2)
Total Cash disbursements for purchases
$226,800
$294,900
$245,925
$767,625
3) Cash Budget
Hillyard Company
Cash Budget
January
February
March
Quarter
Beginning Cash Balance
$59,000
$30,880
$30,360
$59,000
Add: Collection from Customers (Part 1)
$296,000
$443,400
$544,000
$1,283,400
Total Available Cash
$355,000
$474,280
$574,360
$1,342,400
Less: Cash Disbursements
Purchase of Inventory (Part 3)
$226,800
$294,900
$245,925
$767,625
Selling and Administrative expenses (Note 1)
$128,320
$144,080
$121,280
$393,680
Purchase of equipment
$0
$2,900
$79,500
$82,400
Cash dividends
$45,000
$0
$0
$45,000
Total Cash Disbursements
$400,120
$441,880
$446,705
$1,288,705
Excess (deficiency) of cash
-$45,120
$32,400
$127,655
$53,695
Financing:
Borrowings
$76,000
$76,000
Repayments
-$2,000
-$74,000
-$76,000
Interest
-$40
-$2,220
-$2,260
Total Financing
$76,000
-$2,040
-$76,220
-$2,260
Ending Cash Balance
$30,880
$30,360
$51,435
$51,435
Interest Calculation of Repayment of Borrowing
Repayment of Borrowing in February = $2,000*1%*2 months = $40
Repayment of Borrowing in march = $74,000*1%*3 months = $2,220
Note 1 –
Calculation of cash payment for Selling and administrative expense
January
February
March
Sales
404000
601000
316000
Selling and administrative expense:
Salaries and wages
$34,000
$34,000
$34,000
Advertising
$62,000
$62,000
$62,000
Shipping (5% of sales)
$20,200
$30,050
$15,800
Other expense (3% of sales)
$12,120
$18,030
$9,480
Total Selling and administrative expenses
$128,320
$144,080
$121,280
Hope the above calculations, working and explanations are clear to you and help you in understanding the concept of question. Please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you
Pls ask separate question for remaining parts..
Schedule of Expected Cash Collections
January
February
March
Quarter
Cash Sales (20% of total sales)
$80,800
(404,000*20%)
$120,200
(601,000*20%)
$63,200
(316,000*20%)
Credit Sales
$215,200
(Dec AR)
$323,200
(404,000*80%)
$480,800
(601,000*80%)
Total Collections
$296,000
$443,400
$544,000
$1,283,400
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