Question

Davis Dry Goods distributes silk ties. You are in charge of creating Davis' master budget for the upcoming second quarter, April - June 2018. Davis desires a minimum ending cash balance each month of $10,000. The ties are sold to retailers for $8 each. Recent and forecasted sales in units are as follows: January (actual) February (actual) March (actual) April May 22,000 June 33,000 July 37,000 August 41,000 September 51,000 67,000 46,000 37,000 34,000 The large buildup in sales before and during June is due to Father's Day. Ending inventories are supposed to equal 90% of the next month's sales in units. The ties cost the company $5 each. Purchases are paid for as follows: 50% in the month of purchase and the remaining 50% in the following month. All sales are on credit, with no discount, and payable within 15 days. The company has found, however, that only 25% of a month's sales are collected by month-end. An additional 75% is collected in the following month. Bad debts have been negligible. The company's monthly selling and administrative expenses are given below. $1 per tie Variable: Sales commissions Fixed: Wages and salaries Utilities Insurance Depreciation Miscellaneous $ 23,500 $ 15,300 $ 1,200 $ 1,500 $ 3,100 All selling and administrative expenses are paid during the month, in cash, with the exception of depreciation and insurance expired. Davis has an agreement with a bank that allows it 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 $10,000 in cash.

Answer 1

1. a. Sales Budget by Month and in Total:

Sales Budget of Davis Dry Goods for Quarter Ending June30, 2018
Description	Apr	May	Jun	Total
Revenue in units	41,000	51,000	67,000	159,000
Sales @ $8 per unit	328,000	408,000	536,000	1,272,000

b. Expected Cash Collection Schedule by month and in total:

Expected Cash Collections schedule of Davis Dry Goods for Quarter ending June 30 2018
Description	Apr	May	Jun	Total
25% within the month of sale	82,000	102,000	134,000	318,000
75% in following month	222,000	246,000	306,000	774,000
	304,000	348,000	440,000	1,092,000

Please note April collections include 75% of March Sales collection.

c. Merchandise Purchase budget by month and in total:

Merchandise Purchase Budget of Davis Dry Goods for Quarter Ending June 30, 2018
Description	Apr	May	Jun	Total
Ending Inventory (90% of next month sales)	45,900	60,300	41,400	147,600
Add: Sales	41,000	51,000	67,000	159,000
Opening Inventory (Ending inventory of previous month)	36,900	45,900	60,300	143,100
Purchases in Units	50,000	65,400	48,100	163,500
Purchases in $ (@ 5 per unit)	250,000	327,000	240,500	817,500

d.Schedule of Expected Cash disbursement of Merchandise purchases

Expected Cash Disbursements schedule of Davis Dry Goods for Merchandise Purchase for Quarter ending June 30 2018
Description	Apr	May	Jun	Total
50% in the month of Purchases	125,000	163,500	120,250	408,750
50% in the following month	101,500	125,000	163,500	390,000
	226,500	288,500	283,750	798,750

Please note Apr Payments includes 50% of previous month purchases:

e. Selling and Administrative budget for month and in total:

Selling & Administrative Budget of Davis Dry Goods for Quarter Ending June 30, 2018
Description	Apr	May	Jun	Total
Sales Commission $ 1 per tie	41,000	51,000	67,000	159,000
Wages & Salaries	23,500	23,500	23,500	70,500
Utilities	15,300	15,300	15,300	45,900
Insurance	1,200	1,200	1,200	3,600
Depreciation	1,500	1,500	1,500	4,500
Miscellaneous	3,100	3,100	3,100	9,300
	85,600	95,600	111,600	292,800