Question

Chapter 7 CASE You have just been hired as a management trainee by Cravat Sales Company, a nationwide distributor of a designer's silk ties. The company has an exclusive franchise on the distribution of the ties, and sales have grown so rapidly over the last few years that it has become necessary to add new members to the management team. You have been given responsibility for all planning and budgeting. Your first assignment is to prepare a master budget for the next three months, starting April 1. You are anxious to make a favorable impression on the president and have assembled the information below. The company desires a minimum ending cash balance each month of $10,000. The ties are sold to retailers for $8 each35000*. Recent and forecasted sales in units are as follows: January (actual)... February (actual). March (actual)..... April .............................. May .............................................. 20,000 24,000 28,000 35,000 45,000 June.... July ... August .... September 60,000 40,000 36,000 32,000 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 50% is collected in the following month, and the remaining 25% is collected in the second month following sale. 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 ................ $22,000 $14,000 $1,200 $1,500 $3,000 All selling and administrative expenses are paid during the month, in cash, with the exception of depreciation and insurance expired. Land will be purchased during May for $25,000 cash. The company declares dividends of $12,000 each quarter, payable in the first month of the following quarter. The company's balance sheet at March 31 is given below:

Answer 1

Book1 - Microsoft Excel - X Home Insert Page Layout Formulas Data Review View * Cut Copy ♡ General - Wrap Text Merge & Center 1 1 - 3 Autosum * Calibri 11 - A A BI U DA Font Paste Insert Delete Format Conditional Format Formatting as Table Styles Cell Styles Format Painter Clipboard 2 Clear Sort & Find & Filter Select Editing Alignment Number Cells J19 - fe 2 3 Months 4 Budgeted unit sales 5 Selling Price Per unit 6 Total sales Cravet Sales Company Sales Budget April May 35000 $ 8.00 $ $ 2,80,000.00 $ June 45000 8.00 $ 3,60,000.00 $ Quarter 60000 8.00 $ 4,80,000.00 $ 140000 8.00 11,20,000.00 collection From sales 25% In the month of sales 50% In the month following sales 25% In the Second month following sales Schedule of expected cash collections Months Sales April May $ 1,92,000.00 $ 48,000.00 12 Quarter 48,000.00 Mar $ 2,24,000.00 $ 1,12,000.00 $ 56,000.00 1,68,000.00 EEEEE $ 2,80,000.00 $ 70,000.00 $ 1,40,000.00 $ 70,000.00 $ 13 14 February sales=(24000*$8)*25% in April March Sales=(28000*$8)*50% in April and (28000*$8)* 25% 15 in May April sales=($280000*25%) in April,($280000*50%) in May 16 and ($280000*25%) in June May sales=($360000)*25% in May and ($360000*50%) in 17 June 18 June Sales=($480000*25%) in June 19 Total Cash collections Ke Sheet1 Sheet2 Sheet30 Select destination and press ENTER or choose Paste 2,80,000.00 90,000.00 $ $ 3,60,000.00 $ 4,80,000.00 $ 15,36,000.00 $ 1,80,000.00 $ 1,20,000.00 $ 3,70,000.00 $ 2,70,000.00 1,20,000.00 8,86,000.00 2,30,000.00 $ 2,86,000.00 $ BOJ 100% 0 + 18:47 OPA O ENG 20.4 29-11-2019

Book1 - Microsoft Excel - X Home Insert Page Layout Formulas Data Review View * Cut Copy ♡ General - Wrap Text Merge & Center 1 1 - 3 Autosum * Calibri 11 - A A BI U DA Font Paste Insert Delete Format Conditional Format Formatting as Table Styles Cell Styles Format Painter Clipboard 2 Clear Sort & Find & Filter Select Editing Alignment E Number Cells 22 Quarter 60000 140000 36000 96000 54000 420001 5.00 $ 2,10,000.00 $ 36000 176000 31500 144500 5.00 7,22,500.00 J19 fic в 20 Cravet Sales Company 21 Mercendise Purchase Budget April May June 23 Budgeted Unit Sales=(A) 35000 45000 Add:Ending Inventory=(450000*90%) in April,(60000*90% in 24 May),(40000*90%) in June=(B) 40500 54000 25 Total Needs=(C)=(A)+(B) 75500 99000 26 Less: Opening Inventory=(D) 31500 40500 27 Required Purchases=(E )=(C)-(D) 44000 58500 28 Cost of Purchase Per Unit=(F) 5.00 $ 5.00 $ 29 Total Cost of Purchase=(E)*(F) $ 2,20,000.00 $ 2,92,500.00 $ 30 Required Purchases=Budgeted Sales+Ending Inventory-Opening Inventory 31 Total cost of Purchae=Required Purchases* cost of purchase per unit 32 33 Cravet Sales Company Budgeted Cash disbursement of Mercendise Purchase 35 Months June 36 Accounts Payable $ 85,750.00 37 April=($220000*50%) in April,($220000*50%) in May $ 1,10,000.00 $ 1,10,000.00 38 May=($292500*50%) in May an ($292500*50%) in June $ 1,46,250.00 $ 39 June=($210000*50%) in June $ 40 Total Cash Payments $ 1,95,750.00 $ 2,56,250.00 $ Ke Sheet1 Sheet2 Sheet30 Ready 34 April May Quarter 1,46,250.00 $ 1,05,000.00 $ 2,51,250.00 $ 85,750.00 2,20,000.00 2,92,500.00 1,05,000.00 7,03,250.00 DO 100% 0 + PA 18:47 O ENG 29-11-2019

Book1 - Microsoft Excel - X Home Insert Page Layout Formulas Data Review View * Cut Copy ♡ General Calibri 11 - A A BI U DA Font - Wrap Text Merge & Center 99 Paste % 1 D Conditional Format sociale , od. . 3 Insert Delete Format AutoSum" AT A Clear sort le Find & Insert Delete Format Conditional Format Formatting as Table Styles Cell Styles Format Painter Clipboard 2 Clear Sort & Find & Filter Select Editing Alignment Number Cells J20 - fe May For the three months ending June 30th April June $ 14,000.00 $ 10,250.00 $ $ 2,30,000.00 $ 2,86,000.00 $ $ 2,44,000.00 $ 2,96,250.00 $ Quarter 10,000.00 $ 3,70,000.00 $ 3,80,000.00 $ 14,000.00 8,86,000.00 9,00,000.00 $ $ $ 2,56,250.00 $ 22,000.00 $ 14,000.00 $ 45,000.00 $ 3,000.00 $ 25,000.00 1,95,750.00 $ 22,000.00 $ 14,000.00 $ 35,000.00 $ 3,000.00 $ $ 12,000.00 2,81,750.00$ 37,750.00 $ 2,51,250.00 $ 22,000.00 $ 14,000.00 $ 60,000.00 $ 3,000.00 $ $ 43 44 Months 45 Cash Balance 46 Add: Collections from customer 47 Total Cash available 48 Less: Disbursement 49 Mercendise Purchase 50 Wages and Salaries 51 Utilities 52 Commissions(35000*$1),(45000*$1),(60000*$1) 53 Miscellaneous Expenses 54 Land 55 Dividend Paid 56 Total Disbursemnts 57 Excess/Deficiency of receipts over 58 disbursements 59 Financing: 60 Borrowings 61 Repayments 62 Interest=(48000*1%*3)+($79000*1%*2) 63 Total Financing 64 Cash Balance , ending Sheet1 Sheet2 Sheet360 Ready 7,03,250.00 66,000.00 42,000.00 1,40,000.00 9,000.00 25,000.00 12,000.00 9,97,250.00 -97,250.00 $ $ 3,65,250.00$ -69,000.00 $ 3,50,250.00 $ 29,750.00 $ $ 48,000.00 $ 79,000.00 $ $ 1,27,000.00 -16,000.00 -3,020.00 1,07,980.00 10,730.00 $ 79,000.00 $ 10,000.00 $ 48,000.00 $ 10,250.00 $ -16,000.00 $ 3,020.00 $ 19,020.00 $ 10,730.00 $ 65 DO + 100% 0 18:48 ENG 20.4 29-11-2019 OPA O

Book1 - Microsoft Excel - X Page Layout Formulas Data Review View ♡ General Home Insert * Cut La Copy Paste - Format Painter Clipboard - Wrap Text Merge & Center 1 1 - 3 Calibri 12 - A A BI U - ->-A Font Autosum * Conditional Format Formatting as Table Styles Cell Styles Insert Delete Format 2 Clear Sort & Find & Filter Select Editing Alignment Number Cells F87 B 11,20,000.00 8,40,000.00 2,80,000.00 Cravet Sales Company 67 Budgeted Income Statement 68 For the three months ended June 30th 69 70 Sales $ 11,20,000.00 $ 71 Variable Expenes 72 Cost of goods sold $ 7,00,000.00 73 Commission $ 1,40,000.00 $ 74 Contribution Margin $ 75 Fixed Expenses 76 Wages and Salaries $ 66,000.00 77 Utilities 42,000.00 78 Insurance($1200*3) 3,600.00 79 Miscellaneous Expenses($3000*3) 9,000.00 80 Depreciation=($1500*3) 4,500.00 $ 81 Net Operating Income $ 82 Interest Expense $ 83 Net Income $ 84 85 Cost of goods sold=Opening Stock+Purchases-Closing stock=($157500+$722500-(36000*$5) 86 87 Cravet Sales Company Ke Sheet1 Sheet2 Sheet30 Ready 1,25,100.00 1,54,900.00 3,020.00 1,51,880.00 OO 100% 0 u 18:49 ENG 20.11.2010 29-11-2019 g A O

Book1 - Microsoft Excel - X Page Layout Formulas Data Review View Calibri ♡ General Home Insert * Cut La Copy Paste - Format Painter Clipboard - Wrap Text Merge & Center 1 1 - 3 12 - A A ->-A Autosum * BI U - Conditional Format Formatting as Table Styles Cell Styles Insert Delete Format 2 Clear Sort & Find & Filter Select Editing Font Alignment Number Cells F87 f ac 87 Cravet Sales Company 88 Budgeted Balance Sheet 89 June 30th 90 Assets 91 Cash $ 10,730.00 92 Accounts Receivable $ 4,50,000.00 93 Inventory(36000*$5) $ 1,80,000.00 94 Prepaid insurance=($14400-3600) $ 10,800.00 95 Property & Equipment ,net=(172700+25000-4500) $ 1,93,200.00 96 Total Assets $ 8,44,730.00 97 98 Liabilities and stockholder's equity 99 Accounts Payable=($183180*50%) $ 1,05,000.00 100 Borrowings($48000+$79000-$16000) $ 1,11,000.00 101 Dividend Payable $ 12,000.00 102 Common Stock $ 3,00,000.00 103 Retained Earning $ 3,16,730.00 104 Total Liabilities and stockholder's equity $ 8,44,730.00 105 106 Property, Plant & Equipment=Beginning balance+Addition-Depreciation 107 108 Accounts Receivable 109 May salecl Mar Sales*2594 $ 90 000 00 ► Sheet1 Sheet2 Sheet3 Ready OO 100% 0 18:49 0 ANDENG 29-11-2019 W

Book1 - Microsoft Excel - X Home Insert Page Layout Formulas Data Review View * Cut Copy Calibri ♡ General - Wrap Text Merge & Center 1 1 - 3 12 - A A ->-A Autosum * Paste BI U - Insert Delete Format Conditional Format Formatting as Table Styles Format Painter Clipboard Cell Styles 2 Clear Sort & Find & Filter Select Editing Font Alignment Number Cells F87F 100 Borrowings($48000+$79000-$16000) $ 1,11,000.00 101 Dividend Payable $ 12,000.00 102 Common Stock $ 3,00,000.00 103 Retained Earning $ 3,16,730.00 104 Total Liabilities and stockholder's equity $ 8,44,730.00 105 106 Property, Plant & Equipment=Beginning balance+Addition-Depreciation 107 108 Accounts Receivable 109 May sales(May Sales*25%) $ 90,000.00 110 June sales=(June Sales*75%) $ 3,60,000.00 111 Total $ 4,50,000.00 112 113 114 Retained Earnings at june 30th 115 Balance , March 31st $ 1,76,850.00 116 Add: Net Income $ 1,51,880.00 117 Total $ 3,28,730.00 118 Less: Dividend declared $ 12,000.00 119 Balance June 30th $ 3,16,730.00 120 121 122 Sheet1 Sheet2 Sheet3 Ready OO 100% 0 g A O 18:49 ENG 20.11.2010 29-11-2019 a