Question

Developing a Master Budget for a Merchandising Organization Dils Brother Department Store prepares budgets quarterly. The following information is available for use in planning the second quarter budgets for 2017. Dils Brother Department Store Balance Sheet March 31, 2017 Assets Liabilities and Stockholders' Equity Cash $4,000 Accounts payable $31,000 Accounts receivable 31,000 Dividends payable 15,000 Inventory 36,000 Rent payable 3,000 Prepaid Insurance 3,000 Stockholders' equity 50,000 Fixtures 25,000 Total assets $99,000 Total liabilities and equity $99,000 Actual and forecasted sales for selected months in 2017 are as follows: Month Sales Revenue January $ 70,000 February 60,000 March 50,000 April 60,000 May 70,000 June 80,000 July 100,000 August 90,000 Monthly operating expenses are as follows: Wages and salaries $ 27,000 Depreciation 100 Utilities 1,500 Rent 3,000 Cash dividends of $15,000 are declared during the third month of each quarter and are paid during the first month of the following quarter. Operating expenses, except insurance, rent, and depreciation are paid as incurred. Rent is paid during the following month. The prepaid insurance is for five more months. Cost of goods sold is equal to 50 percent of sales. Ending inventories are sufficient for 120 percent of the next month's cost of sales. Purchases during any given month are paid in full during the following month. All sales are on account, with 50 percent collected during the month of sale, 40 percent during the next month, and 10 percent during the month thereafter. Money can be borrowed and repaid in multiples of $1,000 at an interest rate of 12 percent per year. The company desires a minimum cash balance of $4,000 on the first of each month. At the time the principal is repaid, interest is paid on the portion of principal that is repaid. All borrowing is at the beginning of the month, and all repayment is at the end of the month. Money is never repaid at the end of the month it is borrowed.

Answer 1

Monthly Purchase Budget Quarter Ending June 30, 2017 April Cost of sales for month (50% of sales) 30,000 Desired ending inventory (120% of next month COGS) | 42,000 Total inventory needs 72,000 Less beginning inventory 36,000 Budgeted purchases 36,000 May 35,000 48,000 83,000 42,000 41,000 June Total 40,000 105,000 60,000 60,000 100,000 165,000 48,000 36,000 52,000 | 129,000 Schedule of Monthly Cash Receipts Quarter EndingJune 30, 2017 Feb sales April May June Total 10.00% of 60,000 6,000 6,000 March sales 20,000 40.00% of 10.00% of 50,000 50,000 20,000 5,000 5,000 April sales 30,000 50.00% of 40.00% of 10.00% of 60,000 60,000 60,000 24,000 30,000 24,000 6,000 6,000 May sales 35,000 50.00% of 40.00% of 70,000 70,000 35,000 28,000 28,000 June sales 50.00% of 80,000 40,000 74,000 40,000 194,000 Total 56,000 64,000 Schedule of Monthly Cash Disbursements Purchases of prior month Current operating expenses=27000+1500+3000 Dividends Total cash disbursements April | 31,000 31,500 15,000 77,500 May 36,000 31,500 June Total 41,000 108,000 31,500 | 94,500 15,000 72,500 217,500 67,500

Dils Brothers Department Store Monthly Cash Budget Quarter Ending June 30, 2017 April May June Total Cash balance, beginning | 4,000 4,500 4,000 4,000 Receipts 56,000 64,000 74,000 194,000 Disbursements 77,500 67,500 72,500 217,500 Excess receipts over disb. -21,500 - 3,500 1,500 - 23,500 Balance before borrowings -17,500 1,000 5,500 - 19,500 Borrowings 22,000 3,000 - 25,000 Loan repayments Cash balance, ending 4,500 4,000 5,500 5,500 Dils Brothers Department Store Budgeted Balance Sheet June 30, 2017 Assets Liabilities and Equity Cash 5,500 Merchandise payable Accounts receivable=80000*0.5+70000*0.1 47,000 Dividend pay able Inventory 60,000 Rent payable Prepaid insurance=3000*2/5 1,200 Loans payable Fixtures=25000-300 24,700 Interest payable Total assets 138,400 Stockholders' equity=50000+7680-15000 Total liab. & equity 52,000 15,000 3,000 25,000 720 42,680 138,400 Total 210,000 105,000 105,000 Dils Brothers Department Store Budgeted Monthly Income Statements Quarter Endi ng June 30, 2017 April May June Sales 60,000 70,000 80,000 Cost of sales 30,000 35,000 40,000 Gross profit 30,000 35,000 40,000 Operating expenses: Wages and salaries 27,000 27,000 27,000 Depreciation 100 100 100 Utilities 1,500 1,500 1,500 Rent 3,000 3,000 3,000 Insurance (3000/5) 600 600 600 Interest 220 250_ 250 Total expenses 32,420 32,450 32,450 Net income - 2,420 2,550 7,550 81,000 300 4,500 9,000 1,800 720 97,320 7,680

Answer 2

1. Royal Company is preparing budgets for the quarter ending June 30.

2. Budgets sales for the next five months are:

January               30,000 

February             60,000        

March                  40,000

April                     35,000

May                      25,000

3. The selling price is $ 20 per Unit

1.                    All sales are on account.

2.                    Royal’s collection pattern is:

·    80% collection in the month of sale,

·    15% collection in the month following sale,

·    5% is uncollectible.

·     The management at Royal Company wants ending inventory to be equal to 10% of the following month’s budgeted sales in units.

·     Let’s prepare the production budget.