Sweet Company, a specialty chocolate store, prepares a master budget on a quarterly basis. The company has assembled the following data to assist in preparing its master budget for the first quarter:
a. As of December 31 (the end of the prior quarter), the company’s general ledger showed the following account balances:
Debits |
Credits |
|
Cash |
$ 50,000 |
|
Accounts Receivable |
162,500 |
|
Inventory |
58,000 |
|
Buildings and Equipment (net) |
370,000 |
|
Accounts Payable |
$ 65,000 |
|
Capital Stock |
412,500 |
|
Retained Earnings |
163,000 |
|
$640,500 |
$640,500 |
b. Actual sales for November and December, along with budgeted sales for the next four months, are as follows:
November (actual) |
$250,000 |
December (actual) |
$300,000 |
January |
$300,000 |
February |
$650,000 |
March |
$350,000 |
April |
$200,000 |
c. Sales are 50% for cash sales and 50% for credit sales. Credit sales are collected in the two months following the sale: 90% the month after the sale, 10% two months after the sale. The accounts receivable at December 31 are a result of November and December credit sales.
d. The company’s gross margin is 45% of sales. (In other words, cost of goods sold is 55% of sales.)
e. Monthly salary and wage expenses are budgeted as follows: salaries and wages, $27,000 per month for the first two months, $26,000 in March as Sweet cuts the hours of its sales force to reflect declining sales.
f. Other monthly expenses are as follows: advertising $80,000 per month; shipping cost is 5% of total monthly sales revenues, and other expenses are 3% of sales revenues. Depreciation, including depreciation on new assets acquired during the quarter, will be $40,000 for the quarter.
g. Each month’s ending inventory should equal 10% of the following month’s cost of goods sold.
h. One-half of a month’s inventory purchases are paid for in the month of purchase; the other half is paid in the following month.
i. During January, the company will purchase a new copy machine for $2,000 cash. During March, other equipment will be purchased for cash at a cost of $79,500.
j. During January, the company will declare and pay $38,000 in cash dividends.
k. The company must maintain a minimum cash balance of $40,000. An open line of credit is available at a local bank for any borrowing that may be needed during the quarter. All borrowing is done at the beginning of a month, and all repayments are made at the end of a month. Borrowings and repayments of principal must be in multiples of $1,000. Interest is paid only at the time of payment of principal. The annual interest rate is 6%. (Figure interest on whole months, e.g., 2/12, 3/12.)
l. The company does not pay any income taxes.
Required:
Using the data above, complete the following statements and schedules for the first quarter:
3a. Merchandise purchases budget:
January |
February |
March |
Quarter |
|
Budgeted cost of goods sold |
$165,000* |
$357,500 |
||
Add: Desired ending inventory |
35,750’ |
|||
Total needs |
200,750 |
|||
Less: Beginning inventory |
58,000 |
|||
Required purchases |
$142,750 |
|||
*$300,000 sales x 55% cost ratio=$165,000 |
||||
‘$357,500 x 10%=$35,750 |
b. Schedule of expected cash disbursements for merchandise purchases:
January |
February |
March |
Quarter |
|
December purchases |
$65,000 |
$65,000 |
||
January purchases |
71,375 |
$71,375 |
142,750 |
|
February purchases |
||||
March purchases |
||||
Total cash disbursements for purchases |
$136,375 |
Please show your work, Thank you
Sweet Company | ||||
Cost of goods sold(100%-45%) | ||||
January | 300000*55%= | $ 1,65,000.00 | ||
February | 650000*55% | $ 3,57,500.00 | ||
March | 350000*55%= | $ 1,92,500.00 | ||
April | 200000*55%= | $ 1,10,000.00 | ||
Schedule of Merchandise Purchase Budget | ||||
January | February | March | Quarter | |
Cost of goods sold=(I) | $ 1,65,000.00 | $ 3,57,500.00 | $ 1,92,500.00 | $ 7,15,000.00 |
Add: Ending Inventory=(II) | $ 35,750.00 | $ 19,250.00 | $ 11,000.00 | $ 11,000.00 |
Total needs=(i)+(II) | $ 2,00,750.00 | $ 3,76,750.00 | $ 2,03,500.00 | $ 7,26,000.00 |
Beginning Inventory | $ 58,000.00 | $ 35,750.00 | $ 19,250.00 | $ 58,000.00 |
Required Purchases | $ 1,42,750.00 | $ 3,41,000.00 | $ 1,84,250.00 | $ 6,68,000.00 |
Required Purchases=Cost of goods sold+Ending Inventory-Beginning Inventory | ||||
Closing Stock | ||||
January | 357500*10% | |||
February | 192500*10% | |||
March | 110000*10% | |||
Schedule of expected cash disbursement of merchandise Purchase | ||||
January | February | March | Quarter | |
Accounts Payable | $ 65,000.00 | $ 65,000.00 | ||
January Purchase 1/2 in Jan, 1/2 in February | $ 71,375.00 | $ 71,375.00 | $ 1,42,750.00 | |
February Purchases 1/2 in Feb,1/2 in Mar | $ 1,70,500.00 | $ 1,70,500.00 | $ 3,41,000.00 | |
March Purchases=1/2 in March | $ 92,125.00 | $ 92,125.00 | ||
Payment for merchandise purchased | $ 1,36,375.00 | $ 2,41,875.00 | $ 2,62,625.00 | $ 6,40,875.00 |
January | February | March | ||
Accounts Payable | $ 65,000.00 | |||
January Purchase 1/2 in Jan, 1/2 in February | ($142750*50%) | ($142750*50%) | ||
February Purchases 1/2 in Feb,1/2 in Mar | ($341000*50%) | ($341000*50%) | ||
March Purchases=1/2 in March | ($184250*50%) |
Sweet Company, a specialty chocolate store, prepares a master budget on a quarterly basis. The company...
Sweet Company, a specialty chocolate store, prepares a master budget on a quarterly basis. The company has assembled the following data to assist in preparing its master budget for the first quarter: a. As of December 31 (the end of the prior quarter), the company’s general ledger showed the following account balances: Debits Credits Cash $ 50,000 Accounts Receivable 162,500 Inventory 58,000 Buildings and Equipment (net) 370,000 Accounts Payable $ 65,000 Capital Stock 412,500 Retained Earnings 163,000 $640,500...
Sweet Company, a specialty chocolate store, prepares a master budget on a quarterly basis. The company has assembled the following data to assist in preparing its master budget for the first quarter: a. As of December 31 (the end of the prior quarter), the company’s general ledger showed the following account balances: Debits Credits Cash $ 50,000 Accounts Receivable 162,500 Inventory 58,000 Buildings and Equipment (net) 370,000 Accounts Payable $ 65,000 Capital Stock 412,500 Retained Earnings 163,000 $640,500...
ACC 311 Master Budget Problem Sweet Company, a specialty chocolate store, prepares a master budget on a quarterly basis. The company has assembled the following data to assist in preparing its master budget for the first quarter: a. As of December 31 (the end of the prior quarter), the company’s general ledger showed the following account balances: Debits Credits Cash $ 50,000 Accounts Receivable 162,500 Inventory 58,000 Buildings and Equipment (net) 370,000 Accounts Payable $ 65,000 Capital Stock...
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