Question

Davis Dry Goods distributes silk ties. You are in charge of creating Davis' master budget for the upcoming second quarter, April - June 2018 Davis desires a 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: January (actual) February (actual) March (actual) April May 22,000 33,000 37.000 41,000 51,000 June July August September 67,000 46.000 37.000 34,000 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 75% is collected in the following month. Bad debts have been negligible. The company's monthly selling and administrative expenses are given below. Si per tie Variable: Sales commissions Fixed: Wages and salaries Utilities Insurance Depreciation Miscellaneous S 23.500 $ 15,300 $ 1.200 $ 1.500 $ 3,100 Al 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

Davis Dry - Quarter Budget -April - Jun2018
Sales Unit	April	May	June	Total($)	March
Sales Unit	41,000	51,000	67,000	1,59,000	37,000
Sales / Unit($)	8	8	8		8
Sales	3,28,000	4,08,000	5,36,000	12,72,000	2,96,000

Very Important step- 75% of Last Month Sales + 25% of Current Month sales. April month =March Sales * 75% =$222000+April Month 25% current sale - 25% *$328000 = $ 82000

Schedule of Expected cash collection
	April	May	June	Total($)
From Last Month Sale-@75%$	2,22,000	2,46,000	3,06,000	Total($)
From Current Month Sale-@25%$	82,000	1,02,000	1,34,000
Total Collection$	3,04,000	3,48,000	4,40,000	10,92,000

Another Important step do derive Opening and Closing Inventory

= March Month closing Inventory = 90% of next Month sales Unit ( April Sale Unit) = 90%*41000 Unit=36900 Unit

Rate / unit - cost/ unit = $5/unit

	Purchase Budget base working) Unit base)
	Jan	Feb(a)	Mar(c)	April	May	June	July
Sales Unit	22,000	33,000	37,000	41,000	51,000	67,000	46,000
	90% of Next Month Sales
90% of Next Month Sales- Inventory	29,700	33,300	36,900	45,900	60,300	41,400

Purchase Budget	April	May	June
Sales Unit	41,000	51,000	67,000
Less - Start of Inventory	36,900	45,900	60,300
Add - End of Inventory	45,900	60,300	41,400
Total Unit Purchase	50,000	65,400	48,100	1,63,500
Cost rate / Unit($)	5	5	5
Purchase($)	2,50,000	3,27,000	2,40,500	8,17,500

Scheduel fo cash expenses	April	May	June	Total($)
Commission($1/unit)	41,000	51,000	67,000	1,59,000
Wages/Salaries($)	23,500	23,500	23,500	70,500
Utilities($)	15,300	15,300	15,300	45,900
Misc($)	3,100	3,100	3,100	9,300
Total Cash Expenses	82,900	92,900	1,08,900	2,84,700

We can not prepare cash budget because No opening Balance of Cash available As on March end

Tentative Income Statement - April - June - Quarter Budget

Budget Income Statement		Amount ($)	Source
Sales		12,72,000	As calculated above)
Cost of Goods Sold
Start Inventory(36900unit @$5/unit	1,84,500		As calculated above)
Add - Purchase	8,17,500		As calculated above)
End Inventory	2,07,000	7,95,000	As calculated above)
('4100 Unit@$5/unit
Expenses		2,84,700	As calculated above)
Depreciation($1500*3Month)		4,500
Insurance ($1200*3Month)		3,600
Total Expenses		10,87,800
Net Margin		1,84,200

March Purchase Cost ($)

Purchase Budget	March
Sales Unit	37,000
Less - Start of Inventory	33,300
Add - End of Inventory	36,900
Total Unit Purchase	40,600
Cost rate / Unit($)	5
Purchase($)	2,03,000

April - 50% of following Month - $101500+ current Month = 50% of April Purchase =50% * $ 250000=$ 125000

Expected Cash disbursement
	April	May	June	Total($)
From Last Month Purchase (50% of following Month)- March month we calculated ( as above )	1,01,500	1,25,000	1,63,500
From Current Month Purchase	1,25,000	1,63,500	1,20,250
( 50% of Current
Month Purchase
Purchase - calculated above)
Total Disbursement	2,26,500	2,88,500	2,83,750	7,98,750