Question

Project 2- Case 4 40 points Davis Dry Goods distributes silk ties. You are in charge of creating Davis' master budget for the upcoming second quarter, April - June 2018. Davis desiresa 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: 22,000 June 33,000 July 37,000 August 41,000 September 51,000 67,000 46,000 37,000 34,000 January (actual) February (actual) March (actual) Аpril May 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: Variable: $1 per tie Sales commissions Fixed: Wages and salaries Utilities $ 23,500 S 15,300 S1,200 $ 1,500 $ 3,100 Insurance Depreciation Miscellaneous 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

Answer 1.

May | Budgeted Unit Sales Selling Price per unit Total Sales Sales Budget April 41000 8.00 328000 51000 8.00 408000 June 67000 8.00 536000 Quarter 159000 8.00 1272000 June Davis Dry Goods Schedule of Expected Cash Collections April May 222000 82000 246000 102000 March Sales April Sales May Sales June Sales Total Cash Collections Quarter 222000 328000 408000 134000 1092000 306000 134000 440000 304000 348000

Davis Dry Goods Merchandise Purchases Budget April May Budgeted Unit Sales 41000 51000 Add: desired Ending Inventory Inventory 45900 60300 Total Needs 86900 111300 Less: Beginning Merchandise Inventory 36900 45900 Required Purchases 50000 65400 Unit Cost 5.00 5.00 Required Dollar Purchases 250000 327000 June 67000 41400 108400 60300 48100 5.00 240500 Quarter 159000 41400 200400 36900 163500 5.00 817500 Accounts Payable April Purchases May Purchases June Purchases Total Cash Payments Davis Dry Goods Budgeted Cash Disbursements for Merchandise Purchases April May June 101500 125000 125000 163500 163500 120250 226500 288500 2 83750 Quarter 101500 250000 327000 120250 798750

Answer 2.

| May 10600 348000 358600 June 10200 440000 450200 Quarter 19000 109 2000 1111000 Davis Dry Goods Cash Budget April Beginning Cash Balance 19000 Add: Collection from Customers 304000 Total Cash Available 323000 Less: Cash Disbursements Merchandise Purchases 226500 Wages and Salaries 23500 Sales Commissions 41000 Utilities 15300 Miscellaneous Land Purchases Dividend Paid 9000 Total Cash Disbursements 318400 Excess of Cash Available Over Disbursements 4600 Financing: Borrowings 6000 Repayments 0 Interest Total Financing 6000 Ending Cash Balance 10600 Interest = $6,000 * 1% * 3+ $59,000 * 1%* 2 = $1,360 288500 23500 51000 15300 3100 26000 283750 23500 67000 15300 3100 3100 798750 70500 159000 45900 9300 26000 9000 1118450 -7450 407400 48800 392650 57550 59000 -46000 -1360 -47360 10190 65000 -46000 -1360 17640 10190 59000 10200

Answer 3.

1272000 954000 318000 Davis Dry Goods Budgeted Income Statement For the Three Months ended June 30 Sales Less: Variable expenses Cost of goods sold 795000 Sales commission 159000 Contribution margin Less: Fixed expenses Wages and Salaries 70500 Utilities 45900 Insurance Depreciation 4500 Miscellaneous 9300 Net Operating income Interest Expense Net income 3600 133 800 184200 1360 182840

Answer 4.

Davis Dry Goods Budgeted Balance Sheet June 30 Assets Cash Accounts Receivable Inventory Prepaid insurance Fixed Assets (net) Total assets Liabilities and Stockholders' Equity Accounts payable Bank Loan Common Stock Retained earnings Total liabilities and stockholder's equity 10190 402000 207000 10800 170000 799990 120 250 19000 309000 351 740 799990