(PLEASE DO IN EXCEL AND SHOW WORK!!! Thank you!!) The owner of Northwind Unlimit
ID: 2574161 • Letter: #
Question
(PLEASE DO IN EXCEL AND SHOW WORK!!! Thank you!!)
The owner of Northwind Unlimited, Inc. has been concerned about the shortage of cash the company experiences during various times of the year. As a recent graduate of a highly regarded business school, you have been charged with the task of developing a budget that will allow the company to get a better understanding of its cash needs during the year. You have decided to prepare a master budget for the upcoming second quarter. The accounting department and other areas of the company have provided you with the following information.
The company sells many styles of pens, but all are sold for the same price—$10 each. Actual sales of pens for the last three months and budgeted sales for the next six months follow:
January (actual) 20,000 June (budget) 50,000
February (actual) 26,000 July (budget) 30,000
March (actual) 40,000 August (budget) 28,000
April (budget) 65,000 September (budget) 25,000
May (budget) 100,000
The company experiences peak sales during May. The production manager prefers that inventory should be on hand at the end of each month to supply 40% of the pens sold in the following month.
Suppliers are paid $4 for each pen. One-half of a month’s purchases is paid for in the month of purchase; the other half is paid for in the following month. All sales are on credit. Only 20% of a month’s sales are collected in the month of sale. An additional 70% is collected in the following month, and the remaining 10% is collected in the second month following sale. Bad debts have been negligible.
Monthly operating expenses for the company are given below:
Variable:
Sales commissions 4% of sales
Fixed:
Advertising $200,000
Rent $ 18,000
Salaries $106,000
Utilities $ 7,000
Insurance $ 3,000
Depreciation $ 14,000
Insurance is paid on an annual basis, in November of each year.
The company plans to purchase $16,000 in new equipment during May and $40,000 in new equipment during June; both purchases will be for cash. The company declares dividends of $15,000 each quarter, payable in the first month of the following quarter.
The company’s balance sheet as of March 31 is given below:
Assets
Cash $74,000
Accounts receivable ($26,000 February sales;
$320,000 March sales) 346,000
Inventory 104,000
Prepaid insurance 21,000
Property and equipment (net) 950,000
Total assets $1,495,000
Liabilities and Stockholders’ Equity
Accounts payable $100,000
Dividends payable 15,000
Common stock 800,000
Retained earnings 580,000
Total liabilities and stockholders’ equity $1,495,000
The company maintains a minimum cash balance of $50,000. All borrowing is done at the beginning of a month; any repayments are made at the end of a month.
The company has an agreement with a 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. At the end of the quarter, the company would pay the bank all of the accumulated interest on the loan and as much of the loan as possible (in increments of $1,000), while still retaining at least $50,000 in cash.
Required (using an excel spreadsheet):
Prepare a master budget for the three-month period ending June 30. Include the following detailed schedules:
A sales budget, by month and in total.
A schedule of expected cash collections, by month and in total.
A merchandise purchases budget in units and in dollars. Show the budget by month and in total.
A schedule of expected cash disbursements for merchandise purchases, by month and in total.
A cash budget. Show the budget by month and in total. Determine any borrowing that would be needed to maintain the minimum cash balance of $50,000.
A budgeted income statement for the three-month period ending June 30. Use the contribution approach.
A budgeted balance sheet as of June 30.
Explanation / Answer
Ashton Company Sales & Collection Budget Months April May June Total Total Sales Units 65000 100000 50000 215000 All Credit Sales Value 650000 1000000 500000 2150000 Collections: In the Month(20%) 130000 200000 100000 430000 In the Following Month(70%) 280000 455000 700000 1435000 In the Following Second Month(10%) 26000 40000 65000 131000 Total Collections 436000 695000 865000 1996000 Ashton Company Purchase & Cash Disbursement for Purchases Budget Months April May June Total Units Sold During the Month 65000 100000 50000 215000 Add: Desired Closing Stock 40000 20000 12000 Total Requirement 105000 120000 62000 215000 Less: Opening Stock 26000 40000 20000 To be Purchased 79000 80000 42000 215000 Purchase Cost 316000 320000 168000 804000 In The Month(50%) 158000 160000 84000 402000 In The Following Month(50%) 100000 158000 160000 418000 Total Cash Disbursement 258000 318000 244000 820000 Ashton Company Cash Budget Months April May June Total Beginning Cash 74000 50000 50000 174000 Add: Collections 436000 695000 865000 1996000 Total Cash Available 510000 745000 915000 2170000 Less: Cash Payments: Payment to Supplier 258000 318000 244000 820000 Sales Commission(4% of Sales) 26000 40000 20000 86000 Advertising 200000 200000 200000 600000 Rent 18000 18000 18000 54000 Salaries 106000 106000 106000 318000 Utilities 7000 7000 7000 21000 Insurance - - - 0 Equipment 16000 40000 56000 Dividend 15000 15000 Total Cash Disbursements 630000 705000 635000 1970000 Increase/Decrease in Cash -120000 40000 280000 200000 Financing: Borrowings 170000 10000 - Repayments 0 -180000 Interest on Loan 0 -3500 Total Financing 170000 10000 -183500 Closing Cash 50000 50000 96500 Budgeted Income Statement for the period ending on June 30 Particulars Amt Sales 2150000 Less: COGS 860000 (Units Sold *4) Less: Sales commission 86000 Contribution Margin 1204000 Less: Other Costs Advertising 600000 Rent 54000 Salaries 318000 Utilities 21000 Insurance 9000 Depreciation 14000 Interest on Borrowings 3500 Net Contribution 184500 Less: Proposed Dividends 15000 Transfer to Reserves 169500 Balance Sheet as at June 30 Assets Cash 96500 AR Schedule Account Recievables 500000 May 100000 (10% of Sales) Inventory 48000 June 400000 (80% of Sales) Prepaid Insurance 12000 Total 500000 Property & Equipment Net 992000 Total Assets 1648500 Liabilities & Stockholder's Equity AP Schedule Account Payable 84000 June 84000 (Half of June Purchases) Dividend Payable 15000 Total 84000 Common Stock 800000 Retained Earnings 749500 Total 1648500 0
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