Required: You need to prepare a comprehensive 6-month budget, including supporti
ID: 2591180 • Letter: R
Question
Required: You need to prepare a comprehensive 6-month budget, including supporting schedules and a report for the period January 1, 2016 to June 30, 2016 for Napoleon, Inc (a fictional company). This project must include:
Link to template: https://docs.google.com/spreadsheets/d/1VA2CignXg6knJqhi0LnxDMztLFbzUKaQgWCn-m0nMDA/edit?usp=sharing
Sales Forecast and Budget
Cash Receipts budget
Purchase budget
Cash Purchases Disbursements budget
Operating Expense budget
Summary Cash budget
Budgeted Income Statement
Budgeted Balance Sheet
A written Summary Report
The schedules/budgets must be prepared on Excel. The templates I have prepared must be used as is.
Part of this project is demonstrating proper use of Excel. You may only input a “hard number” into a pink cell. All yellow cells must be formula based (no numbers included – use appropriate cell referencing). You must include a copy of the formula version of the project or you will receive a 0 (zero).
I recommend constructing the formulas for one month and then copying the formulas over to the remaining months.
Rounding is encouraged and you may ignore interest and taxes.
The budget templates and this instruction sheet are located on the budget project module. Make sure you save the file to excel and then open the file through Excel (not Internet Explorer).
Check figures are also located on the budget project module.
A written summary report, outlining the main issues and problems identified during the budgeting process and suggestions for improving the budget forecast. Don’t explain how you prepared the budget. Analyze the issues, including profitability, cash needs, and cost structure. Suggest at least 3 ways you can improve the business forecast for the next 6 months to a year. Test your suggestions by preparing revised budget schedule. Attached is an example of a budget report.
INFORMATION FOR NAPOLEON, INC. BUDGET PROJECT
Napoleon, Inc. is a company that re-sells one product, a particularly comfortable lawn chair. An overseas contractor makes the product exclusively for Napoleon, so Napoleon has no manufacturing-related costs.
As of 11/15, each lawn chair costs Napoleon $4 per unit. Napoleon sells each chair for $10 per unit.
The estimated sales (in units) are as follows:
Nov 15
11,250
Dec 15
11,600
Jan 16
10,000
Feb 16
11,400
Mar 16
12,000
Apr 16
15,600
May 16
18,000
June 16
22,000
July 16
18,000
Per an existing contract, the cost of each chair is scheduled to increase by 5% on March 1, 2016. In addition, because of increasing costs of plastic webbing, the cost is anticipated to increase by an additional 5% on May 1, 2016. To offset these increases, the company plans to raise the sales price to $11.25 per unit beginning May 1, 2016. The sales forecast (i.e., estimated sales in units) takes this price increase into account.
Thirty percent of any month’s sales are for cash, and the remaining 70% are on credit. Thirty percent of the credit sales are collected in the month of sale, 50% are collected in the following month, and 16% are collected in the second month after the sale. The remaining receivables are deemed uncollectible. Bad debts are written off in the month the debt is deemed uncollectible (e.g. if the sale is made in January and is not collected by the end of March, it is written off in March.) No accrual for estimated bad debts is made in the month of sale.
The firm’s policy regarding inventory is to stock (i.e. have in ending inventory) 40% of the forecasted demand in units (i.e., estimated sales) for the next month. Napoleon uses the first-in, first-out (FIFO) method in accounting for inventories.
Forty percent of the inventory purchases are paid for in the month of purchase and the remaining 60% are paid in the following month (i.e. all of the previous month’s Accounts Payable are paid off by the end of any month.)
Per a prior contract, a cash payment of $50,000 for equipment previously purchased is due in January. Another payment of $30,000 is due in February. Depreciation on the equipment previously purchased is included in the overhead cost detailed below (see item 9). Also, dividends of $12,000 are to be paid in March.
Monthly operating expenses consist of the following (if these are cash expenses, they are paid when incurred):
Salaries and Wages
$3,000
Sales Commissions
7% of sales revenue
Rent
$8,000
Other Variable Cash Expenses
6% of sales revenue
Supplies Expense: See note
$2,000
Other: See note
$48,000
Note: Other general and administrative overhead is expected to be $48,000 per month. Of this amount, $24,000 represents depreciation and other non-cash expenses. The company maintains on hand one month’s worth of supplies.
The company must maintain a minimum cash balance of $15,000. Borrowing can make up shortfalls. For simplicity, assume that the bank will only lend (and accept repayments) in $1,000 increments. Ignore interest on the loan in your calculations, but minimize the amount borrowed and pay off any loans as soon as possible.
Cash on hand as of December 31, 2015 is expected to be $15,000. In addition, there will be no notes payable as of this date.
See below the other Balance Sheet accounts with their expected balances as of December 31, 2015:
Supplies.................................................... $ 2,000
Property, Plant and Equipment................... 1,050,000
Accumulated Depreciation.............................. 526,475
Common Stock............................................... 200,000
Retained Earnings......................................... 322,811
Nov 15
11,250
Dec 15
11,600
Jan 16
10,000
Feb 16
11,400
Mar 16
12,000
Apr 16
15,600
May 16
18,000
June 16
22,000
July 16
18,000
Explanation / Answer
Nov '15 Dec '15 Jan '16 Feb '16 Mar '16 Apr '16 May '16 June '16 6 mos total Budged unit sales 11250 11600 10000 11400 12000 15600 18000 22000 89000 Selling price per unit $10 $10 $10 $10 $10 $10 $11.25 $11.25 Total Sales $112,500 $116,000 $100,000 $114,000 $120,000 $156,000 $202,500 $247,500 $940,000 Cash Sales % 30% 30% 30% 30% 30% 30% 30% 30% Credit Sales % 70% 70% 70% 70% 70% 70% 70% 70% Cash Sales $33,750 $34,800 $30,000 $34,200 $36,000 $46,800 $60,750 $74,250 $282,000 Credit Sales $78,750 $81,200 $70,000 $79,800 $84,000 $109,200 $141,750 $173,250 $658,000 Total Sales $112,500 $116,000 $100,000 $114,000 $120,000 $156,000 $202,500 $247,500 $940,000 Current month A/R Collections 1 month prior A/R Collections 2 months prior A/R Collections Uncollectible Napoleon, Inc. Cash Collections For the 6 mos ending June '16 Jan '16 Feb '16 Mar '16 Apr '16 May '16 June '16 6 mos total Current month cash Sales $30,000 $34,200 $36,000 $46,800 $60,750 $74,250 $282,000 Current month A/R Collections $21,000 $23,940 $25,200 $32,760 $42,525 $51,975 $197,400 1 month prior A/R Collections $40,600 $35,000 $39,900 $42,000 $54,600 $70,875 $282,975 2 months prior A/R Collections $12,600 $12,992 $11,200 $12,768 $13,440 $17,472 $80,472 Total cash collections $104,200 $106,132 $112,300 $134,328 $171,315 $214,572 $842,847 Bad Debt Expense $4,000 $4,560 $4,800 $6,240 $8,100 $9,900 Desired ending inventory % 40% Napoleon, Inc. Purchase Budget For the 6 mos ending June '16 Nov '15 Dec '15 Jan '16 Feb '16 Mar '16 Apr '16 May '16 June '16 6 mos total Budged unit sales 11250 11600 10000 11400 12000 15600 18000 22000 89000 Add desired ending inventory 4640 4000 4560 4800 6240 7200 8800 7200 38800 Total needs 15890 15600 14560 16200 18240 22800 26800 29200 127800 Less Beginning Inventory 4640 4000 4560 4800 6240 7200 8800 35600 Required Purchases 10960 10560 11640 13440 16560 19600 20400 92200 Cost per unit $4 $4 $4 $4.20 $4.20 $4.41 $4.41 Purchases $43,840 $42,240 $46,560 $56,448 $69,552 $86,436 $89,964 $391,200 % Paid in Month of Purchase 40% 40% 40% 40% 40% 40% 40% 40% % Paid in Month after Purchase 60% 60% 60% 60% 60% 60% 60% 60% Napoleon, Inc. Schedule of Budgeted Cash Disbursements for Merchandise Purchases For the 6 mos ending June '16 Jan '16 Feb '16 Mar '16 Apr '16 May '16 June '16 6 mos total Cash purchases $16,896 $18,624 $22,579 $27,821 $34,574 $35,986 $156,480 1 month prior A/P Collections $26,304 $25,344 $27,936 $33,869 $41,731 $51,862 $207,046 Cash disbursements for merchandise purch. $43,200 $43,968 $50,515 $61,690 $76,306 $87,847 $363,526
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