Question

To prepare a master budget for January, February, and March of 2018, management gathers the following information. a. Blue Group’s single product is purchased for $30 per unit and resold for $57 per unit. The expected inventory level of 4,500 units on December 31, 2017, is more than management’s desired level for 2018, which is 20% of the next month’s expected sales (in units). Expected sales are: January, 8,250 units; February, 9,750 units; March, 12,025 units; and April, 10,500 units. b. Cash sales and credit salesrepresent 45% and 55%, respectively, of totalsales. Of the creditsales, 70% is collected in the first month after the month of sale and 30% in the second month after the month of sale. For the December 31, 2017, accounts receivable balance, $125,000 is collected in January and the remaining $395,000 is collected in February. c. Merchandise purchases are paid for as follows: 35% in the first month after the month of purchase and 65% in the second month after the month of purchase. For the December 31, 2017, accounts payable balance, $80,000 is paid in January and the remaining $285,000 is paid in February. d. Sales commissions equal to 12% ofsales are paid each month. Salessalaries(excluding commissions) are $254,000 per year. e. General and administrative salaries are $321,000 per year. Maintenance expense equals $2,550 per month and is paid in cash. f. Equipment reported in the December 31, 2017, balance sheet was purchased in January 2017. It is being depreciated over eight years under the straight-line method with no salvage value. The following amounts for new equipment purchases are planned in the coming quarter: January, $29850; February, $62525; and March, $95750. This equipment will be depreciated under the straight-line method over eight years with no salvage value. A full month’s depreciation is taken for the month in which equipment is purchased. g. The company plans to acquire land at the end of March at a cost of $145,000, which will be paid with cash on the last day of the month. h. Blue Group has a working arrangement with its bank to obtain additional loans as needed. The interest rate is 12% per year, and interest is paid at each month-end based on the beginning balance. Partial or full payments on these loans can be made on the last day of the month. The company has agreed to maintain a minimum ending cash balance of $54,400 in each month. i. The income tax rate for the company is 30%. Income taxes on the first quarter’s income will not be paid until April 15.

5.) Monthly capital expenditures budgets.

6.) Monthly cash budgets.

BLUE GROUP COMPANY Estimated Balance Sheet December 31, 2017 Liabilities and Equity $37,000 Accounts payable 520,000 Bank loan payable Taxes payable (due 3/15/2018) 692,000 Total liabilities Common stock Assets Cash Accounts receivable S365,000 15,000 135,000 92,000 Inventory Total current assets $472,000 471,000 Equipment Less accumulated depreciation $543,000 67,875 475,125 Retained earnings 224.125 Total stockholders' equity $1,167,125 Total liabilities and equity 695,125 $1,167,125 Total assets

Answer 1

Capital Expenditure Budget:
	Jan	Feb	March
New Equipment Purchase	29850	62525	95750
Land Acquisition	0	0	145000
Total	29850	62525	240750
Cash Budget :
	Jan	Feb	March
Cash Received from Accounts Receivable	125000	576046	291555
-Cash paid to Accounts Payable	-80000	-344850	-218303
-sales commission @12%	-56430	-66690	-82251
-Sales Salaries (254000/12)	-21167	-21167	-21167
-G&A Salaries (321000/12)	-26750	-26750	-26750
-Maintenance Expense	-2550	-2550	-2550
-Purchase of Equipment	-29850	-62525	-95750
-Purchase of Land	0	0	-145000
-Payment of taxes(Payable on 3/15/2018)			-92000
-Payment of Interest @12%p.a.	-150	-1243	-740.25
Changes in Cashflow (a)	-91897	50271.6	-392955
Opening Cash Balance (b)	37000	54400	54400
Minimum Cash required (c )	54400	54400	54400
Borrowing/(Repayment) of Loan (d=c-b-a)	109297	-50272	392955
Ending Cash Balance (a+b+d)	54400	54400	54400

Working Notes :

Purchase Budget
	Jan	Feb	March	April
Sales (units)	8250	9750	12025	10500
Closing Stock	1950	2405	2100
-Opening Stock	-4500	-1950	-2405
Purchase (units)	5700	10205	11720
Cash Received from Accounts Receivable
	Jan	Feb	March	April
Credit Sales @ 55% (sales units*57*55%)	258637.5	305662.5	376983.8	329175
70% in next month	0	181046.3	213963.8
30% in following month	0	0	77591.25
December Receivables	125000	395000	0
Cash Received	125000	576046.3	291555
Cash paid to Accounts Payable
	Jan	Feb	March	April
Purchase (units*30)	171000	306150	351600	0
35% in next month	0	59850	107152.5
65% in following month	0	0	111150
December Payables	80000	285000	0
Cash Paid	80000	344850	218302.5
Bank Loan & Interest
	Jan	Feb	March
Opening	15000	124297	74025
Addition	109297	0	392955
-Repayment	0	-50272	0
Closing	124297	74025	466980