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:
5. Cash budget:
January |
February |
March |
Quarter |
|
Cash balance, beginning |
$50,000 |
|||
Add cash collections |
297,500 |
|||
Total cash available |
347,500 |
|||
Less cash disbursements: |
||||
Purchases of inventory |
136,375 |
|||
Selling and administrative expenses |
131,000 |
|||
Purchases of equipment |
||||
Cash dividends |
||||
Total cash disbursements |
||||
Excess (deficiency) of cash |
||||
Financing: |
||||
Borrowings |
||||
Repayments |
||||
Interest |
||||
Total Financing |
||||
Cash Balance, ending |
Note:1 | Schedule of cash collections | ||||||||
January | February | March | Quarter | ||||||
Budgeted sales | 300000 | 650000 | 350000 | 1300000 | |||||
Cash sales @ 50% | a | 150000 | 325000 | 175000 | 650000 | ||||
Credit sales @ 50% | 150000 | 325000 | 175000 | 650000 | |||||
90% Collected in the month following sale | b | 135000 | 135000 | 292500 | 562500 | ||||
(300000*50%*90%) | (150000*90%) | (325000*90%) | |||||||
10% collected in two months after sale | c | 12500 | 15000 | 15000 | 42500 | ||||
(250000*50%*10%) | (300000*50%*10%) | (150000*10%) | |||||||
Total collections | a+b+c | 297500 | 475000 | 482500 | 1255000 | ||||
Note:2 | |||||||||
Gross margin=45% of sales | |||||||||
Cost of goods sold=100%-45%=55% of sales | |||||||||
Budgeted ending inventories | |||||||||
Jan | Feb | Mar | April | ||||||
Sales in $ | 300000 | 650000 | 350000 | 200000 | |||||
Cost of goods sold | (55% of sales) | 165000 | 357500 | 192500 | 110000 | ||||
Ending inventory | |||||||||
(10% of following month's cost of goods sold) | 35750 | 19250 | 11000 | ||||||
Merchandise purchase budget | |||||||||
Jan | Feb | Mar | Quarter | ||||||
Cost of goods sold | 165000 | 357500 | 192500 | 715000 | |||||
Add: Desired ending inventory | 35750 | 19250 | 11000 | 66000 | |||||
Total needs | 200750 | 376750 | 203500 | 781000 | |||||
Less; beginning inventory | 58000 | 35750 | 19250 | 113000 | |||||
(Ending inventory of last month) | (Refer balance sheet) | ||||||||
Required purchases | 142750 | 341000 | 184250 | 668000 | |||||
Note:3 | Schedule of expected cash disbursement | ||||||||
Jan | Feb | Mar | Quarter | ||||||
December purchases (Accounts payable) | 65000 | 65000 | |||||||
January purchases | (142750*1/2) | 71375 | 71375 | 142750 | |||||
February purchases | (341000*1/2) | 170500 | 170500 | 341000 | |||||
March purchases | (184250*1/2) | 92125 | 92125 | ||||||
Total | 136375 | 241875 | 262625 | 640875 | |||||
Note:4 | Selling and administrative expenses | ||||||||
Jan | Feb | Mar | Quarter | ||||||
Salaries and wages | 27000 | 27000 | 26000 | 80000 | |||||
Advertising | 80000 | 80000 | 80000 | 240000 | |||||
Shipping | (5% of sales) | 15000 | 32500 | 17500 | 65000 | ||||
(300000*5%) | (650000*5%) | (350000*5%) | |||||||
Other expenses | (3% of sales) | 9000 | 19500 | 10500 | 39000 | ||||
(300000*3%) | (650000*3%) | (350000*3%) | |||||||
Total | 131000 | 159000 | 134000 | 424000 | |||||
5 | Cash budget | ||||||||
Jan | Feb | Mar | Quarter | ||||||
Cash balance,beginning | 50000 | 40125 | 114250 | 38075 | |||||
Add: cash collections | (Note:1) | 297500 | 475000 | 482500 | 1255000 | ||||
Total cash available | a | 347500 | 515125 | 596750 | 1459375 | ||||
Less: Cash disbursements | |||||||||
Purchases of inventory | (Note:3) | 136375 | 241875 | 262625 | 640875 | ||||
Selling and administrative expenses | (Note:4) | 131000 | 159000 | 134000 | 424000 | ||||
Purchase of new copy machine | 2000 | 2000 | |||||||
Purchase of equipment | 79500 | 79500 | |||||||
Cash dividends | 38000 | 38000 | |||||||
Total cash disbursements | b | 307375 | 400875 | 476125 | 1184375 | ||||
Excess (deficiency) of cash | c=a-b | 40125 | 114250 | 120625 | 275000 | ||||
Financing: | |||||||||
Borrowings | (To make $ 40000 balance) | 0 | |||||||
Repayment | 0 | 0 | |||||||
Interest | 0 | 0 | |||||||
(81000*1%*3) | |||||||||
Total financing | d | 0 | 0 | 0 | 0 | ||||
Cash balance,ending | e=c+d | 40125 | 114250 | 120625 | 120625 | ||||
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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