Question

PROBLEM 8-29 Completing a Master Budget LO8-2, LO8-4, LO8-7, LO8-8, LO8-9, L08-10 The following data relate to the operations of Shilow Company, a wholesale distributor of cor- sumer goods: Current assets as of March 31: $8,000 Cash $20,000 Accounts receivable Inventory.... . $36,000 $120,000 $21,750 Bulding and equipment, net. Accounts payable. . Common stock. Retained earnings. $150,000 $12,250 The gross margin is 25% of sales. a.

Answer 1

1) Schedule of Expected Cash Collections (Amounts in $)

Expected Cash collected for:	April	May	June	Quarter
Cash Sales (60% of sales)	36,000 (60,000*60%)	43,200 (72,000*60%)	54,000 (90,000*60%)	133,200
Credit Sales (collected in next month)	20,000 (50,000*40%)	24,000 (60,000*40%)	28,800 (72,000*40%)	72,800
Total cash collections	56,000	67,200	82,800	206,000

2) Merchandise Purchases Budget (Amounts in $)

	April	May	June	Quarter
Budgeted Cost of goods sold (75% of sales)	45,000 (60,000*75%)	54,000 (72,000*75%)	67,500 (90,000*75%)	166,500
Add: Desired Ending Inventory (80% of next month cost of goods sold)	43,200	54,000	28,800 (48,000*75%*80%)	28,800
Total needs	88,200	108,000	96,300	195,300
Less: Beginning Inventory	36,000	43,200	54,000	36,000
Required Purchases	52,200	64,800	42,300	159,300

Notes:-

i) Desired ending inventory of June = (July Sales*75%)*80%

= ($48,000*75%)*80% = $28,800

Schedule of Expected Cash Disbursements-Purchases (Amounts in $)

	April	May	June	Quarter
March Purchases (50% in current month and 50% in next month)	21,750	0	0	21,750
April Purchases (52,200*50%)	26,100	26,100		52.200
May Purchases (64,800*50%)	0	32,400	32,400	64,800
June Purchases (42,300*50%)	0	0	21,150	21,150
Total Disbursements	47,850	58,500	53,550	159,900

3) Cash Budget is shown as follows:- (Amounts in $)

Cash Budget	April	May	June	Quarter
Beginning Cash Balances	8,000	4,350	4,590	8,000
Add: Cash Collections	56,000	67,200	82,800	206,000
Total cash available	64,000	71,550	87,390	214,000
Less: Cash Disbursements
For Inventory	47,850	58,500	53,550	159,900
For expenses [2,500+(18% of sales)]	13,300 [(60,000*18%)+2,500]	15,460 [(72,000*18%)+2,500]	18,700 [(90,000*18%)+2,500]	47,460
For equipment	1,500	0	0	1,500
Total cash disbursements	62,650	73,960	72,250	208,860
Excess (Deficiency) of cash (A)	1,350	(2,410)	15,140	5,140
Financing:
Borrowing	3,000 (4,000-1,350 rounded off to 1,000)	7,000 (2,410 Def.+4,000 min cash balance rounded to 1,000)	0	10,000
Repayment	0	0	(10,000)	(10,000)
Interest	0	0	(230) [(3,000*3%)+(7,000*2%)]	(230)
Total Financing (B)	3,000	7,000	(10,230)	(230)
Ending Cash Balance (A+B)	4,350	4,590	4,910	4,910

4) Absorption Costing Income Statement for the Quarter (Amounts in $)

SHILOW COMPANY
Absorption Costing Income Statement
For The Quarter Ended June 30
Sales Revenue (60,000+72,000+90,000)		222,000
Less: Cost of Goods Sold
Beginning Inventory	36,000
Purchases	159,300
Ending Inventory	(28,800)	166,500
Gross Margin (A)		55,500
Less: Expenses
Commission (12%*$222,000)		26,640
Rent (2,500*3 months)		7,500
Depreciation Expense (900*3 months)		2,700
Others (222,000*6%)		13,320
Interest Expense		230
Total Expenses (B)		50,390
Net Income (A-B)		5,110