Question

Universal Electric Company is a small, rapidly growing wholesaler of consumer electrical products. The firm's main product lines are small kitchen appliances and power tools. Marcia Wilcox, Universal's general manager of marketing, has recently completed a sales forecast. She believes that the company's sales during the first quarter of next year will increase by 10 per cent each month over the previous month's sales. Wilcox then expects sales to remain constant for several months. Universal's projected balance sheet as at 31 December this year is as follows: Cash $ 35 000 Accounts receivable 270 000 Marketable securities 15 000 Inventory 154 000 Buildings and equipment (net of acc. depr.) 626 000 Total assets $1 100 000 Accounts payable Long-term loan interest payable Property taxes payable Long-term loan payable (10% p.a.) Share capital Retained earnings Total liabilities and shareholders' equity $176 400 12 500 3 600 300 000 500 000 107 500 $1 100 000 Jack Hanson, the assistant accountant, is now preparing a monthly budget for the first quarter of next year. In the process, the following information has been accumulated: . Projected sales for December this year are $400 000. Credit sales typically are 75 per cent of total sales. Universal's credit experience indicates that 10 per cent of the credit sales are collected during the month of sale, and the remainder are collected during the following month. Universal's cost of goods sold generally runs at 70 per cent of sales. Inventory is purchased on credit, and 40 per cent of each month's purchases is paid during the month of purchase. The remainder is paid during the following month. In order to have adequate inventory on hand, the firm aims to have inventory at the end of each month equal to half of the next month's projected cost of goods sold. Hanson has estimated that Universal's other monthly expenses will be as follows: Sales salaries $18 000 Advertising and promotion 19 000 Administrative salaries 21 000 Depreciation 25 000 Interest on long-term loan 2 500 Property taxes 900 In addition, sales commissions run at the rate of 1 per cent of sales.

Answer 1

Solution:

Part 1 –

Sales Budget
	Current	Next Year
	December	January	February	March	1st Quarter
Total Sales	$400,000	440,000	484,000	532,400	1,456,400
Cash Sales	$100,000	$110,000	$121,000	$133,100	364,100
Credit Sales	$300,000	$330,000	$363,000	$399,300	1,092,300

Part 2 – Cash Receipts Budget

	Cash Receipts Budget
January	February	March	1st Quarter
Cash Sales (from part 1)	$110,000	$121,000	$133,100	$364,100
Cash receipts from credit sales made during current month	$33,000	$36,300	$39,930	$109,230
Cash receipts from credit sales made during preceding month	$270,000	$297,000	$326,700	$893,700
Total Cash Receipts	$413,000	$454,300	$499,730	$1,367,030

Part 3 – Purchases Budget

	Current Year	Next Year
December	January	February	March	1st Quarter
Budgeted Cost of Goods Sold (70% of Total Sales)	$280,000	$308,000	$338,800	$372,680
Add: Desired ending inventory	$154,000	$169,400	$186,340	$204,974
Total goods needed	$434,000	$477,400	$525,140	$577,654
Less: Expected beginning inventory	$140,000	$154,000	$169,400	$186,340
Purchases	$294,000	$323,400	$355,740	$391,314	$1,070,454
April Sales = March Sales $532,400 * 1.1 = $585,640
Cost of Goods Sold April = $532,400 * 70% = $409,948
Ending Inventory March = COGS April $409,948 / 2 = $204,974

Part 4 – Cash Payment Budget

	Cash Payment Budget
	January	February	March	1st Quarter
Inventory Purchases
Cash payments for purchases during the current month	$129,360	$142,296	$156,526
Cash payments for purchases during the preceding month	$176,400	$194,040	$213,444
Total Cash payments for inventory purchases	$305,760	$336,336	$369,970	$1,012,066
Other expenses
Sales salaries	$18,000	$18,000	$18,000
Advertising and promotion	$19,000	$19,000	$19,000
Administrative salaries	$21,000	$21,000	$21,000
Interest on long term loan	$2,500
Property taxes	$900
Sales commissions	$4,400	$4,840	$5,324
Total cash payments for other expenses	$65,800	$62,840	$63,324	$191,964
Total cash payments	$371,560	$399,176	$433,294	$1,204,030

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As per HOMEWORKLIB RULES, first 4 parts are compolsary to answer. Request you to please ask separate question for other parts of this problems