Question

1)Silver Company makes a product that is very popular as a Mother’s Day gift. Thus, peak sales occur in May of each year, as shown in the company’s sales budget for the second quarter given below:

April May June Total Budgeted sales (all on account)

$300,000 $500,000 $200,000 $1,000,000

From past experience, the company has learned that 20% of a month’s sales are collected in the month of sale, another 70% are collected in the month following sale, and the remaining 10% are collected in the second month following sale. Bad debts are negligible and can be ignored. February sales totaled $230,000, and March sales totaled $260,000.

Required:

1. Prepare a schedule of expected cash collections from sales, by month and in total, for the second quarter.

2. What is the accounts receivable balance on June 30th?

2) Down Under Products, Ltd., of Australia has budgeted sales of its popular boomerang for the next four months as follows:

	Unit Sales
April		50,000
May		75,000
June		90,000
July		80,000

The company is now in the process of preparing a production budget for the second quarter. Past experience has shown that end-of-month inventory levels must equal 10% of the following month’s unit sales. The inventory at the end of March was 5,000 units.

Required:

Prepare a production budget by month and in total, for the second quarter.

3) Three grams of musk oil are required for each bottle of Mink Caress, a very popular perfume made by a small company in western Siberia. The cost of the musk oil is $1.50 per gram. Budgeted production of Mink Caress is given below by quarters for Year 2 and for the first quarter of Year 3:

	Year 2					Year 3
	First	Second	Third	Fourth		First
Budgeted production, in bottles	60,000	90,000	150,000	100,000		70,000

Musk oil has become so popular as a perfume ingredient that it has become necessary to carry large inventories as a precaution against stock-outs. For this reason, the inventory of musk oil at the end of a quarter must be equal to 20% of the following quarter’s production needs. Some 36,000 grams of musk oil will be on hand to start the first quarter of Year 2.

Required:

Prepare a direct materials budget for musk oil, by quarter and in total, for Year 2.

4)Minden Company is a wholesale distributor of premium European chocolates. The company’s balance sheet as of April 30 is given below:

Minden Company Balance Sheet April 30
Assets
Cash	$	9,000
Accounts receivable		54,000
Inventory		30,000
Buildings and equipment, net of depreciation		207,000
Total assets	$	300,000
Liabilities and Stockholders’ Equity
Accounts payable	$	63,000
Note payable		14,500
Common stock		180,000
Retained earnings		42,500
Total liabilities and stockholders’ equity	$	300,000

The company is in the process of preparing a budget for May and has assembled the following data:

1. Sales are budgeted at $200,000 for May. Of these sales, $60,000 will be for cash; the remainder will be credit sales. One-half of a month’s credit sales are collected in the month the sales are made, and the remainder is collected in the following month. All of the April 30 accounts receivable will be collected in May.

2. Purchases of inventory are expected to total $120,000 during May. These purchases will all be on account. Forty percent of all purchases are paid for in the month of purchase; the remainder are paid in the following month. All of the April 30 accounts payable to suppliers will be paid during May.

3. The May 31 inventory balance is budgeted at $40,000.

4. Selling and administrative expenses for May are budgeted at $72,000, exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at $2,000 for the month.

5. The note payable on the April 30 balance sheet will be paid during May, with $100 in interest. (All of the interest relates to May.)

6. New refrigerating equipment costing $6,500 will be purchased for cash during May.

7. During May, the company will borrow $20,000 from its bank by giving a new note payable to the bank for that amount. The new note will be due in one year.

Required:

1. Calculate the expected cash collections for May.

2. Calculate the expected cash disbursements for merchandise purchases for May.

3. Prepare a cash budget for May.

4. Prepare a budgeted income statement for May.

5. Prepare a budgeted balance sheet as of May 31.

5) You have been asked to prepare a December cash budget for Ashton Company, a distributor of exercise equipment. The following information is available about the company’s operations:

1. The cash balance on December 1 is $40,000.

2. Actual sales for October and November and expected sales for December are as follows:

	October		November		December
Cash sales	$	65,000	$	70,000	$	83,000
Sales on account	$	400,000	$	525,000	$	600,000

Sales on account are collected over a three-month period as follows: 20% collected in the month of sale, 60% collected in the month following sale, and 18% collected in the second month following sale. The remaining 2% is uncollectible.

3. Purchases of inventory will total $280,000 for December. Thirty percent of a month’s inventory purchases are paid during the month of purchase. The accounts payable remaining from November’s inventory purchases total $161,000, all of which will be paid in December.

4. Selling and administrative expenses are budgeted at $430,000 for December. Of this amount, $50,000 is for depreciation.

5. A new web server for the Marketing Department costing $76,000 will be purchased for cash during December, and dividends totaling $9,000 will be paid during the month.

6. The company maintains a minimum cash balance of $20,000. An open line of credit is available from the company’s bank to increase its cash balance as needed.

Required:

1. Calculate the expected cash collections for December.

2. Calculate the expected cash disbursements for merchandise purchases for December.

3. Prepare a cash budget for December. Indicate in the financing section any borrowing that will be needed during the month. Assume that any interest will not be paid until the following month.

Answer 1

silver Company Sales Budget April May June Quarter Sales 300000 500000 200000 1000000 Schedule of Expected Cash Collection For the Quarter ending June April May June Quarter February 23000 23000 March 182000 26000 208000 April 60000 210000 30000 300000 May 100000 350000 450000 June 40000 40000 Totals 265000 336000 420000 1021000 |2. What is the accounts receivable balance on June 30th? May 500000- 450000= 50000 June 200000- 40000 160000 Total 210000

A C F 1 Silver Company 2 3 Sales Budget 4 April May June Quarter 5 Sales 300000 500000 200000 1000000 Schedule of Expecte 7 8 For the Quarter endi April 9 May June Quarter 10 February 11 March -230000*0.1 SUM(B10:D10) -260000*0.7 -260 -SUM(B11:D11) 0.1 12 April -B5*0.2 B5*0.7 -B5*0.1 =SUM(B12:D12) =SUM(B13:D13) 13 May C5*0.2 C5*0.7 14 June =D5*0.2 SUM(B14:D14) SUM(B15:D15) 15 Totals SUM(B10:B14) -SUM(C10:C14) =SUM(D10:D14) 16 17 2. What is the accou 18 19 May 500000 450000 50000 20 June 200000- 40000 -200000-40000 -SUM(D19:D20) Total 21 m.

Down Under Products, Ltd. Prepare production budget by month and in total, for the second quarter. a April May June Quarter Sales units 75000 215000 50000 90000 Ending Inv. 7500 9000 8000 8000 57500 223000 84000 98000 Open.Inv. -5000 -7500 -9000 -5000 Production 218000 52500 76500 89000 Mink Caress Prepare a direct materials budget for musk oil, by quarter and in total, for Year 2 Quarter Third Fourth First Second Year 2 Required production in units of finish goods 60000 90000 150000 100000 400000 Units of raw materials needed per unit of finished goods 3 3 3 3 3 Units of raw materials needed to meet production 300000 180000 270000 450000 1200000 Add: Desired units of ending raw materials inventory 60000 14000 54000 90000 14000 Total units of raw materials needed 510000 314000 234000 360000 1214000 Less: Units of beginning raw materials inventory -36000 -36000 -54000 -90000 -60000 Units of raw materials needed to be purchased 198000 306000 420000 254000 1178000 Unit cost of raw materials 1.5 1.5 1.5 1.5 1,5 Cost of raw materials to purchased 297000 459000 381000 630000 1767000

K H M 1 Down Under Products, Ltd. 2 3 Prepare a production budget by month and in total, fo 4 April 5 Мay Quarter June 6 Sales units -SUM(16: K6) 50000 75000 90000 - K6*0.1 7 Ending Inv. =J6*0.1 -80000*0.1 - K7 -SUM (L6: L7 ) -SUM (J6: 7 ) - SUM (K6: K7) -SUM(16:17) 8 9 Open.Inv. -16*0.1 17 =-17 19 - SUM (K8: K9 ) -SUM (J8:J9 ) -SUM (L8 : L9 ) 10 Production -SUM(18:19) 11 12 Mink Caress 13 14 Prepare a direct materials budget for musk oil, by qua 15 16 Quarter First Second Third Fourth 17 Year 2 SUM(118:L18) 18 Required production in units of finish goods 150000 100000 60000 90000 19 Units of raw materials needed per unit of finished goo3 3 3 3 =K18 *K19 20 Units of raw materials needed to meet production 118*119 EJ18*J19 L18*L19 =M18*M19 - 70000*0.2 - K20* 0.2 - L20*0.2 21 Add: Desired units of ending raw materials inventory J20*0.2 - L21 -SUM(120:121) - SUM (K20: K21) -SUM (L20:L21) =SUM(J20:J21) SUM(M20:M21) 22 Total units of raw materials needed 23 Less: Units of beginning raw materials inventory =-120*0.2 - 121 =-J21 -K21 E123 -SUM ( J22 : J23) SUM(122:123) -SUM (K22: K23) -SUM (L22: L23) =SUM(M22:M23) 24 Units of raw materials needed to be purchased 25 Unit cost of raw materials 1.5 1.5 1.5 1.5 1.5 EM24*M25 26 Cost of raw materials to purchased =124*125 =J24*J25 - K24 *K25 -L24*L25 27

Minden Company Sales Budget May Cash 60000 Credit 140000 Totals 200000 Sales Collection May April 54000 May 130000 184000 Purchases May Credit 120000 Purchase payments May April 63000 May 48000 Total 111000 Cash Budget For the month of May May Opening Bal 9000 Collections 184000 Cash Available 193000 Disbursements: Purchase payments Selling and admin expense Note Payable 111000 72000 14600 Refriger Equipment Total Payments 6500 204100 Excess cash over payments -11100 New Note Payable 20000 Cash Balance 8900

Income Statement For the month of May Sales 200000 Less: Cost of goods sold Opening Inventory Purchases 30000 120000 Closing Inventory 110000 -40000 Gross Profit 90000 Selling and admin expense 72000 Depreciation Expense 2000 Interest Expense 100 74100 Net Income 15900 Balance sheet As at May 31 Assets Cash 8900 Accounts Receivable 70000 Inventory 40000 Buildings & Equip 211500 Total Assets 330400 Liabilities & Equity Accounts payable 72000 Note payable 20000 Common stock 180000 Retained earnings 58400 Total liabilities and stockholders' equity 330400