Question

Maleeq Enterprise prepares its master budget on a quarterly basis. The following data has been assembled to assist in preparing the master budget for the first quarter:

 

a.    As of 31^st December, the company’s trial balances showed the following:

Accounts	Debit (RM)	Credit (RM)
Cash	48,000
Accounts   Receivable	224,000
Inventory	60,000
Premises	370,000
Accounts payable		93,000
Common Stock		500,000
Retained Earnings		109,000
	702,000	702,000

 

b.    Actual sales for December and budgeted sales for the next four months are as follows:

December (actual)	RM 280,000
January	RM 400,000
February	RM 600,000
March	RM 300,000
April	RM 200,000

 

c.     Sales are 20% for cash and 80% on credit. All payments on credit sales are collected in the following months following sale. The accounts receivable in December 31 are a result of the December credit sales.

d.    The company’s gross margin is 40% of sales. (In other words, cost of goods sold is 60% of sales.)

e.    Monthly expenses are budgeted as follows: salaries and wages, $27,000 per month: advertising, $70,000 per month; shipping, 5% of sales; other expenses, 3% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be $42,000 for the quarter.

f.      Each month’s ending inventory should equal 25% of the following month’s cost of goods sold.

g.    One-half of a month’s inventory purchases is paid for in the month of purchase; the other half is paid in the following month.

 

 

h.    During February, the company will purchase a new copy machine for $1,700 cash. During March, another equipment will be purchased in cash at a cost of $84,500.

i.      During January, the company will declare and pay $45,000 in cash dividends.

j.      Management wants to maintain a minimum cash balance of $30,000. The company has an agreement with a local bank that allows the company 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. The company would, as far as it is able, repay the loan plus accumulated interest at the end of the quarter.

 

Based on the data above,

1. prepare      schedule of expected cash collections:

2. Calculate :

1. The       Merchandise purchases budget

2. Schedule of       expected cash disbursements for merchandise purchases

3. Prepare the      Cash Budget

4. Prepare an      absorption costing income statement for the quarter ending March 31

5. Prepare a      balance sheet as of March 31.