To prepare a master budget for January, February, and March of 2016, management

Question

To prepare a master budget for January, February, and March of 2016, management gathers the following Information a. Dimsdale Sports' single product is purchased for $30 per unit and resold for $55 per unlt. The expected Inventory level of 5,000 units on December 31, 2015, is more than management's desired level for 2016 which Is 20% of the next month's expected sales (in units). Expected sales are: January. 000 units February, 9,000 units; March, 11,000 units, and April, 10,000 units. b. Cash sales and credit sales represent 25% and 75%, respectively, of total sales. Of the credit sales, 60% is collected in the first month after the month of sale and 40% in the second month after the month of sale For the December 31, 2015, accounts recelvable balance, $125,000 is collected In January and the remalning $400,000 is collected In February c. Merchandise purchases are paid for as follows: 20% in the first month after the month of purchase and 80% in the second month after the month of purchase. For the December 31, 2015, accounts payable balance, $80,000 Is pald In January and the remaining $280,000 is paid In February $60,000 per year. month and is pald In cash. d. Sales commissions equal to 20% of sales are paid each month. Sales salaries (excluding commissions) are e. General and adminlstrative salaries are $144,000 per year. Malntenance expense equals $2,000 per f. Equipment reported In the December 31, 2015, balance sheet was purchased in January 2015. It is belng depreclated over elght years under the straight-line method with no salvage value. The following amounts for new equipment purchases are planned in the coming quarter: January, $36,000; February, $96,000; and March, $28,800. This equlpment will be depreclated under the straight-line method over elght years with no salvage value. A full month's depreclation is taken for the month In which equipment Is purchased. g. The company plans to acquire land at the end of March at a cost of $150,000, which will be pald with cash on the last day of the month. h. Dimsdale Sports has a working arrangement with its bank to obtalin additlonal loans as needed. The Interest rate is 12% per year, and Interest is paid at each month-end based on the beginning balance Partial or full payments on these loans can be made on the last day of the month. The company has agreed to malntaln a minimum ending cash balance of $25,000 In each month. i. The Income tax rate for the company is 40%. Income taxes on the first quarter's income will not be paid until April 15 Required: Prepare a master budget for each of the first three months of 2016; Include the following component budgets:

Explanation / Answer

DIMSDALE SPORTS CO. Sales Budget For January, February, and March, 2016 January February March Sales in unit 7000 9000 11000 Selling price per unit $55 55 55 Budgeted Total Sales $385,000 $495,000 $605,000 Cash Sales 25.00% $96,250 $123,750 $151,250 Sales on credit 75.00% $288,750 $371,250 $453,750 Collected in March in Total January February March Receivable Accounts Receivable - January 1 $525,000 $125,000 $400,000 Credit sales from: January $396,000 $173,250 $222,750 February $115,500 $115,500 $148,500 March $453,750 Total collection of receivables $1,036,500 $125,000 $573,250 $338,250 $602,250 Total Cash Receipt from customers January February March Cash Sales $96,250 $123,750 $151,250 Collections of receivables $125,000 $573,250 $338,250 Total $221,250 $697,000 $489,500 Calculation of Payment for Merchandise January February March Desired ending inventory (units) 1800 2200 2000 Budgeted units sales for month 7000 9000 11000 Total units Required 8800 11200 13000 Beginning inventory (units) -5000 -1800 -2200 Units to be purchased 3800 9400 10800 Budgeted cost per unit $30 $30 $30 Budgeted merchandise purchases $114,000 $282,000 $324,000 January February March Next month's budgeted sales (units) 9000 11000 10000 Ratio of inventory to future sales 20.00% 20.00% 20.00% Budgeted ending inventory (units) 1800 2200 2000 Paid in March in Total January February March Payable Accounts Payable Jan 1 $360,000 $80,000 $280,000 Merchandise Purchase in January 0 February 79200 $22,800 $56,400 $225,600 March 91200 $91,200 $324,000 Total cash paid for Merchandise $530,400 $80,000 $302,800 $147,600 $549,600

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